Post on 25-Apr-2020
transcript
First TrustSenior Loan ETF (CAD−Hedged)
Confidential and not for distribution to the public | Advisor Use Only
Bobby Eng, CIMA
Senior Vice President & Head of Sales
First Trust Portfolios
(FSL:TSX) (FSL.A:TSX)
Agenda
• About First Trust
• Senior Loan ETF
• Product Summary
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About First Trust
Confidential and not for distribution to the public | Advisor Use Only
Mutual Funds + Separate
Managed Accounts + Other
$1.2 Billion
Our Products First Trust Corporate Overview
Exchange Traded Funds
First Trust Advisors L.P. is the portfolio advisor and utilizes the AlphaDEXTM stock selection methodology, a unique fundamental weighting approach of generating positive alpha
Closed-End Funds
First Trust Portfolios L.P. leverages its national and global relationships to provide a variety of investment solutions to retail clients
Mutual Funds
Funds managed by First Trust Advisors L.P., marketed by First Trust Portfolios Canada, designed to give investors access to variety of asset classes and research strategies not normally available to retail investors.
ASSET UNDER MANAGEMENT OR SUPERVISION BY FIRST TRUST ADVISORS
$70.1 Billion USD (as at 6/28/2013)
Variable Annuity Funds
$4.6 Billion
UITs
$45.2 Billion
Closed End Funds
$7.0 Billion
Exchange Traded Funds
$12.1 Billion
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Investment Philosophy First Trust Corporate Overview
Percentage Growth in ETF Assets by U.S. ETF Sponsor 2010-2012
310%
183%
169%
121%
67%
51%
50%
18%
21%
-13%
First Trust
Wisdomtree
Vanguard
Van Eck
State Street
Powershares
BlackRock
Direxion
Guggenheim
Proshares
Covering the period from 12/31/2009 through 12/31/2012; includes the top ten U.S. ETF issuers by AUM.
Source: First Trust & Bloomberg. As of 12/31/2012
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First Trust
Senior Loan ETF (CAD−Hedged)
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(FSL:TSX) (FSL.A:TSX)
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
18.0%
1/5/62 1/5/66 1/5/70 1/5/74 1/5/78 1/5/82 1/5/86 1/5/90 1/5/94 1/5/98 1/5/02 1/5/06 1/5/10
Historical 10 Year Treasury Yield1/5/1962 - 6/28/13
Source: Bloomberg, LPThe chart is for illustrative purposes only. Past performance is no guarantee of future results.
2.49%
Long Term Average Yield
6.55%
6/28/13
Treasury Yields Have Declined for Over 30 Years
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Confidential and not for distribution to the public | Advisor Use Only
Fixed Income Opportunity Set
Senior Secured Floating Rate Loans represented by the S&P LSTA Index. 1-5 Year US TIPS represented by the Barclays Capital 1−5 Year US TIPS Index which tracks inflation-protected securities issued by the U.S. Treasury with maturities from 1 and up to 5 years. 1−3 Year Treasury Index represented by the Barclays Capital 1−3 Year Treasury Index which consists of public obligations of the U.S. Treasury with maturities from 1 and up to 3 years. High Yield Bond Index represented by the BofA Merrill Lynch High Yield Index. US Aggregate Bond Index represented by the Barclays Capital US Aggregate Bond Index which covers the investment-grade, U.S. dollar-denominated, fixed-rate taxable bond market, including Treasuries, government-related and corporate securities, MBS (agency fixed-rate and hybrid ARM pass throughs), ABS, and CMBS. US Government Index represented by the Barclays Capital US Government Index which is comprised of the U.S. Treasury and U.S. Agency Indices and includes Treasuries and U.S. agency debentures. Investment Grade Corporate Index represented by the Barclays Capital US Corporate Investment Grade Index which consists of publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity, and quality requirements.
In a persistently low interest rate environment, we believe investors have few options to generate a high level of income without assuming significant duration risk.
Sources: Barclays Capital, S&P LCD,
First Trust Advisors L.P. Chart data as of
June 30, 2013. The chart is for illustrative
purposes only and not indicative of any
fund. The illustration excludes the
effects of taxes and brokerage
commissions or other expenses incurred
when investing. Investors cannot invest
directly in an index. The historical
performance of the indices shown is for
illustrative purposes only and it is not
intended to imply or guarantee the
future performance of any asset class or
a fund. Past performance is no
guarantee of future results.
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
0 1 2 3 4 5 6 7 8
Yie
ld t
o M
atu
rity
Duration
1-3 Year Treasury
Index1-5 Year US TIPS
Senior Secured Floating Rate
Loans
High Yield Bond Index
US Aggregate Bond Index
US Government
Index
Investment Grade Corporate Index
Fixed Income Opportunity Set – Duration/YTM
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Characteristics of Senior Loans
S&P LSTA Index
S&P LSTA Index 1.00
Merrill Lynch High Yield Index (HUC0) 0.77
Barclays Capital Aggregate Index -0.05
Barclays Capital Intermediate Treasury Index -0.42
Barclays Capital Corporate Bond Index 0.32
Russell 1000 Index 0.46
Sources: Barclays Capital, S&P
LCD, First Trust Advisors L.P.
S&P/LSTA Leveraged Loan Index
Mar 2013, Review S&P LCD High-
Yield Weekly Review July 2, 2013,
Barclays Capital June 2013, Russell
Investments June 2013. The chart
is for illustrative purposes only and
not indicative of any fund.
The illustration excludes the
effects of taxes and brokerage
commissions or other expenses
incurred when investing. The BofA
Merrill Lynch US High Yield
Constrained Index tracks the
performance of U.S. dollar
denominated below investment
grade corporate debt publicly
issued in the U.S. domestic market
but caps issuer exposure at 2%.
Senior loans are represented by
the S&P/LSTA (Loan Syndications
and Trading Association) U.S.
Leveraged Loan Index (LLI). LLI
tracks the current outstanding
balance and spread over LIBOR for
fully funded term loans. An index
cannot be purchased directly by
investors. The historical
performance of the indices shown
is for illustrative purposes only and
it is not intended to imply or
guarantee the future performance
of any asset class or a fund. Past
performance is no guarantee of
future results.
Long-Term Correlation of Monthly ReturnsJuly 31, 1999 to June 30, 2013
-40.00%
-20.00%
0.00%
20.00%
40.00%
60.00%S&P/LSTA Leverage Loan Index
Annual Returns of Senior Loans
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Characteristics of Senior Loans and High-Yield Bonds
Senior Loans typically:
� Are senior secured� Have floating interest rate� Have protective covenants
High-Yield Bonds typically:
� Have call protection� Pay a fixed coupon� Are junior to senior secured
loans
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
Bil
lio
ns
Total Par Amount Outstanding
Institutional Loans Outstanding High Yield Bonds Outstanding
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Senior Loans Senior Secured Bonds Senior Unsecured Bonds Subordinated Bonds
Average Recovery Rates Measured by Ultimate Recoveries
1987 - 2012
Source: S&P/LSTA Leveraged Loan Index June 2013, S&P LCD High-Yield Weekly Review April 4, 2013, Barclays Capital June 2013, Russell Investments June 2013. Moody’s Annual Default Study: Corporate Default & Recovery Rates
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Senior Loan & High Yield Bond Default Rates
Source: Standard & Poor’s LCD Dec 2012, JP Morgan high yield research Dec 2012, Moody’s Annual Default Study: Corporate Default & Recovery Rates, 1920-2011. Universe includes Senior Loans and High-Yield Bonds.The charts are for illustrative purposes only and not indicative of any fund. Past performance is not indicative of future results. Investors cannot invest directly in an index.
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
Senior Loan LTM Default Rate High Yield LTM Default Rate Average Senior Loan Average High Yield
Senior Loan and High Yield Historical Default Rates December 1999 – June 2013
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The Effect of a 1% Rise in Interest Rates
-4.11%
-6.81%
-1.92%
0.39%
2.50%
5.23%
-2.03%-2.73%
-9.22%
-7.38%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
Barclays U.S.
Treasury, 5−7
Year
Barclays U.S.
Treasury, 10
Year Bellwether
Barclays U.S.
Investment
Grade
Corporate Bond,
5−7 Year
Barclays USD
Emerging
Markets Debt,
5−7 Year
Barclays U.S.
Intermediate
High Yield
Corporate Bond
S&P/LSTA
Leveraged Loan
Index
Merrill Lynch US
Preferred Stock,
Fixed Rate
Barclays
Municipal, 7
Year (6−8)
Barclays
Municipal, Long
Bond (22+)
Barclays Taxable
Municipal−Build
America Bonds
Hypothetical Total Return
Yield 1.68% 2.48% 3.22% 5.24% 6.63% 5.23% 5.28% 2.25% 4.33% 4.69%
Duration 5.80 9.29 5.14 4.85 4.13 0.25 7.31 4.99 13.55 12.07
The table illustrates hypothetical examples and does not represent the return on any particular investment. Data as of 6/28/13. Effective duration is used for the preferred index and modified adjusted duration for all others. Duration is a measure of a bond’s sensitivity to interest rate changes that reflects the change in a bond’s price given a change in yield. The performance figures are for illustrative purposes only and do not account for all factors that may potentially impact returns. Given that senior loans typically pay a floating rate of interest, they tend to have an effective duration of approximately zero. As such, we estimate the duration for senior loans to be approximately 0.25 years.
Comparison of Asset Class Performance in Periods of Rising Interest Rates
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Source: Credit Suisse Asset Management.Credit Suisse Asset Management defines periods of rising rates as those in which the 10-Year US Treasury yield rose on a monthly basis for a period of six months or more. Indices used as proxies for asset classes are: US Equities (S&P 500 Index); Inflation-Linked (Barclays Capital US TIPS Index); Senior Loans (Credit Suisse Leveraged Loan Index); High Yield (Barclays Capital US Corporate High Yield Index); US Core Bonds (Barclays Capital US Aggregate Bond Index); and Emerging Markets Debt (Barclays Capital Emerging Markets Sovereign Bond Index). Indices are unmanaged and cannot be purchased directly by investors. The historical performance of the indices shown is for illustrative purposes only and it is not intended to imply or guarantee the future performance of any asset class or any fund. Past performance is no guarantee of future results.
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First Trust Leveraged Finance Team
Leveraged Finance Team OverviewThe First Trust Leveraged Finance Team currently manages or supervises approximately $1 billion in senior secured bank loans and high yield bonds. These assets are spread across a closed-end fund, an open-end fund, an exchange-traded fund, a series of unit investment trusts, and two institutional separate accounts.
*First Trust Short Duration High Income fund is included under retail bank loan assets, although the fund holds some high yield assets as well.
$648.2
$186.1
$133.2
Assets under Management
and Supervision
as of 6/30/2013 in Millions
Bank Loans*
High Yield Bonds
Institutional Separate Accounts
The First Trust Advisors L.P. Leveraged Finance Team (“First Trust”) is a robust team of eleven experienced credit professionals, specializing in below investment-grade securities. The team is comprised of portfolio management, research, trading and operations. As of June 30, 2013, the First Trust Leveraged Finance Team managed or supervised approximately $1 billion in senior secured bank loans and high-yield bonds. These assets are invested across a closed-end fund, an open-end fund, two exchange-traded funds, a series of unit investment trusts and an institutional separate account.
Several principals have worked together for over a decade� The average number of years of experience for a Leveraged Finance Investment Team
member is approximately 16 years.� Each senior member holds:
• Chartered Financial Analyst (CFA) Designation• MBA degrees from highly regarded institutions (Northwestern University, University of
Chicago, and DePaul University)
Team has proven results over time� Demonstrated success in managing assets across vehicle types
• Retail: open-end funds, closed-end funds, asset selection for unit investment trusts• Institutional: separate accounts, structured products (CLOs), commingled institutional
funds
Varied and successful experience includes:� Rigorous fundamental credit analysis of high-yield credit, including bonds, broadly
syndicated and middle market loans in both the US and Europe� Work-out/restructuring experience
First Trust Takes a Different Approach
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The investment process is a balanced combination of bottom-up fundamental credit analysis and portfolio construction.
• Fundamental credit analysis involves evaluation of the macro-economy, industry trends, consistency of cash flows, collateral coverage, and management quality.
• Portfolio Construction focuses on relative value within a risk management framework.
Market-Cap Weighted High Yield and Senior Loan Index ETFs
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An issuer’s weight in the index is a function of the quantity and current price of its outstanding debt.
Traditional Cap-Weighting Approach
Debt Issuance
We
igh
t in
In
de
x
Traditional market-cap weighted high yield and senior loan index ETFs
Two factors determine which high yield bonds or senior loans are selected, and how they are weighted within the underlying index:
• Quantity of corporate issues• Price of bonds / loans
Investment implications:• Investors lend more to the most indebted borrowers, and less to the least
indebted borrowers, irrespective of their relative ability to repay their debt.
• Greater exposure to issuers that are either more heavily indebted or overvalued may result in an unnecessary drag on investment returns.
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First Trust Senior Loan ETF – Why now?
Economic backdrop…
• Supportive of senior loan & high-yield credit performance:
• Modest economic growth
• Low default rates
• Generally sound corporate health
• Spreads continue to look attractive
• Potentially offering an attractive yield in a low interest rate environment
FSL Strategy rationale in current environment…
• Through an actively managed strategy, the portfolio may:
• Limit interest rate risk through investment in floating rate senior loans
• Limit potential credit losses through continuous credit monitoring and active selection
Experienced Team…
• Bottom-up fundamentally driven credit process within a risk-controlled portfolio construction
framework
• Successful track record
First Trust Senior Loan Fund (FTSL)
• Senior Loans: Senior loans are generally secured
by the assets of a given company. Senior loans secured
position within a capital structure may mitigate losses
in the event of a default.
• Floating Rate: The fund may provide an element
of protection against rising interest rates because
of the floating-rate feature of the senior loans in which
the fund invests.
• Active Management: FTSL is an actively managed senior
loan ETF, providing credit risk management, enhanced
liquidity and transparency for senior loan investors.
Fund DetailsPotential Benefits of Investing
Portfolio Managers
William Housey, CFA
Senior Vice President, Senior Portfolio Manager
17 years portfolio management/investment experience
Scott D. Fries, CFA
Senior Vice President, Portfolio Manager
19 years investment industry experience
18
Fund TickerCommon Class: FSLAdvisor Class: FSL.A
Fund Inception August 28, 2013
Primary Listing TSX
Distribution Yield** xxxx
Currency Hedged Yes
Management fee 0.85%
Trailer0.5% per annum (Advisor
Class Only)
Top 5 Holdings (%) as of 6/28/13 %
xxxx xxxxxxx xxx
xxxx xxx
xxxx xxx
xxxx xxx
Summary
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Disclaimer
This presentation is for informational purposes only and is not and should not be taken or construed as investment or tax advice to any person. Specific investments and/or investment strategies should be evaluated in the context of an investor’s entire circumstances. Investors should consult their own advisors as to the merits of a particular investment. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund/ETF investments. Please read the prospectus before investing. Mutual funds/ETFs are not guaranteed, their values change frequently and past performance may not be repeated.
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