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Invesco Euro Corporate Bond Fund
Paul Read,
Co-Manager Fixed Income,Invesco Perpetual
7 June 2011
Citywire Frankfurt Forum
This document is exclusively for use by professional clients in Continental Europe and is not for consumer use. Please do not redistribute this document.
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The Invesco Henley Fixed Income Team
• One of the UK’s largest managers of retail fixed income funds
• £16.3bn assets under management*
• Both lead managers over 25 years in fixed income markets including a 16 year track record at Invesco
• 45 awards for investment performance— 5x winner of Investment Week Awards— 8x winner of Lipper Fund Awards— 8x winner of Standard & Poor’s awards
• 6 S&P rated funds, 6 OBSR rated funds
Source: Invesco. *As at 23 May 2011.
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Spreads tighter, yields higher
50
100
150
200
250
300
350
Apr 10 Jul 10 Oct 10 Jan 11 Mar 11
AA rated A rated BBB rated
Euro investment grade spreads (bps)
Source: Merrill Lynch, data as at 30 April 2011.
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Apr 10 Jul 10 Oct 10 Jan 11 Mar 11
AA Rated A Rated BBB Rated
Euro investment grade yield to maturity (%)
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Euro credit markets – longer term
0
100
200
300
400
500
600
700
00 01 02 03 04 05 06 07 08 09 10 11
AA RatedA RatedBBB Rated
Euro investment grade spreads (bps)
Source: Merrill Lynch, data as at 30 April 2011.
2
3
4
5
6
7
8
9
10
00 01 02 03 04 05 06 07 08 09 10 11
AA RatedA RatedBBB Rated
Euro investment grade yield to maturity (%)
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Invesco Euro Corporate Bond FundKey features
• Euro denominated fund
• Minimum 70% investment grade credit
• Up to 30% in a combination of high yield and government bonds
• No duration restrictions
• Little or no currency risk (sector permits up to 10%)
Source: Invesco as at 31 March 2011.
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Invesco Euro Corporate Bond FundCurrent investment strategy
Source: Invesco as at 30 April 2011. There is no guarantee that the securities mentioned will be held by Invesco funds in the future
Attractive value ~28%
Includes high yield, T1/ECN and hybrids
e.g.
Pernod 4.875% 2016 UPC 8.125% 2017Lloyds 6.439% ECN
UBS 8.836% T1
Core/defensive ~56%
e.g.
NAB 3.5% 2015JPM 3.875% 2020
Telefonica 4.693% 2019France Telecom 3.875% 2020
Liquidity ~16%
Includes cash, short-dated paper, government and
government guaranteed
e.g.
Ford 7.125% 2012Germany 2.5% 2015
1 2 3
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Source: Invesco, Bloomberg LP. ‘Corporate bond average’ is Merrill Lynch Euro Corporate Bond Index yield. Fund data isaverage position-weighted yield as at 30 April 2011. ‘Hybrids’ and T1/ECNs are yield to call. High yield is ex-subordinated sub-investment grade rated bonds. Gross current yield 4.91%; gross redemption yield 5.40% as at 30 April 2011.
Invesco Euro Corporate Bond FundStill areas of value
4.08
5.455.91
7.52
2
3
4
5
6
7
8
9
Corporate bond indexaverage
High yield in fund (5%of fund)
Hybrids in fund (10% offund)
T1/ECNs in fund (13%of fund)
Average yield (%)
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Invesco Euro Corporate Bond FundBank exposure with YTD change %
Source: Invesco as at 30 April 2011. Includes Banks and Building Societies.
40.50
0.11
14.02
3.37
6.42
16.58
0.00
Dec 10 %
73.90Covered
2010.40Tier 1
12.55Enhanced Capital Notes
21.20Convertible
267.03Lower Tier 2
36.08
11.00
Apr 11 %
Total
Senior
91
35
No. of holdings Apr 11
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Subordinated bank capital
• Cyclical stabilisation
• Balance sheet risk reduction
• Regulatory reform
• Value
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Balance sheet risk reductionExample - Lloyds Banking Group
13.3%12.2%11.5%10.2%Core 1 ratio
129%136%144%155%Loan/deposit ratio
14.8%13.6%13.0%11.6%Tier 1 ratio
Key metrics
Balance sheet (£m) 12/10 12/11E 12/12E 12/13E
Total assets 991,574 929,817 891,862 865,293
Risk weighted assets 406,372 382,163 395,048 384,270
Customer deposits 393,633 407,108 431,174 455,240
Source: Goldman Sachs estimates data as at 30th March 2011. There is no guarantee that the securities mentioned will be held by Invesco funds in the future.
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Source: Bloomberg LP, Merrill Lynch data, as at 30 April 2011.
Value concentrated in financials
0
100
200
300
400
500
Cons
Non-
Cyc
Cons
Cyc
Energ
y
Indust
rials
Media
Basi
cIn
dust
ry
Tele
com
s
Utilit
ies
Insu
rance
-Sen
Real Est
ate
Bankin
g-
Snr
Serv
ices
Cyc
Capital
Goods
Low
er
Tie
r2
Upper
Tie
r2 Tie
r 1
Selected Euro investment grade spreads (bps)
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Subordinated bank capitalSample of holdings
• Lloyds 6.439% ECN 2020, 8.4% yield to maturity
• Barclays 4.75% T1 2020 call, 9.3% yield to call
• SocGen 7.756% T1 2013 call, 6.7% yield to call
• BNP 7.781% T1 2018 call, 6.4% yield to call
There is no guarantee that the securities mentioned will be held by Invesco funds in the future.
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Invesco Euro Corporate Bond Fund Key purchases and sales in 2011
Steadily improving credit quality and increasing duration
• Purchases— Wal-Mart 4.875% 2029, AA rated— EDF 4.5% 2040, A+ rated — Telecom Italia 5.25% 2055, BBB rated— McDonalds 4.0% 2021, A rated— Tesco 5.125% 2047, A- rated— Allianz 5.75% hybrid A+ rated
• Sales— Parpublica 5.25% 2017, BB+ rated — Barclays 4.75% T1 A- rated— LBG 6.439% 2020, BB rated— Rhodia FRN 2013, BB- rated
There is no guarantee that the securities mentioned will be held by Invesco funds in the future.
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Invesco Euro Corporate Bond Fund Credit exposure (%) - quality improving
5.54
4.64
35.76
22.00
9.94
12.67
3.08
Sep 10
-3.30
+2.56
-5.94
+4.29
-0.11
+3.05
+0.14
Pps change
2.24B
7.20BB
29.82BBB
26.29A
9.83AA
15.72AAA
3.22
Apr 11
Cash
Source: Invesco as at 30 April 2011. Data excludes unrated bonds, CDS, futures & equities.
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Invesco Euro Corporate Bond FundModified duration
2
2.5
3
3.5
4
4.5
5
5.5
Apr06
Aug06
Dec06
Apr07
Aug07
Dec07
Apr08
Aug08
Dec08
Apr09
Aug09
Dec09
Apr10
Aug10
Dec10
Apr11
2
2.5
3
3.5
4
4.5
5
Modified duration (lhs)10Yr bund yield, %
Source: Invesco as at 30 April 2011.
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Direct peripheral exposure in the index is limited
• Italy 8.6% of market— Banking 4.6% (Intesa Sanpaolo, Unicredit, Mediobanca, M del Paschi etc)— Utility 1.4% (Enel, Edison, Terna, A2A)— Energy 0.6% (ENI)— Insurance 0.6% (Generali, Assicurazioni)— Telcos 0.6% (Telecom Italia, Olivetti)
• Spain 4.7% of market— Banking 1.8% (Santander, BBVA, Banesto, La Caixa, Banco Bilbao)— Energy/utility 1.6% (Enagas, Repsol, Gas Natural, Iberdrola)— Telecom 1.1% (Telefonica)
• Portugal (1.1%), Ireland (31bps), Greece (zero)
Source: Data based on Merrill Lynch Euro Corporate Bond Index March 2011There is no guarantee that the securities mentioned will be held by Invesco funds in the future.
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Invesco Euro Corporate Bond Fund Peripherals exposure %1
• Currently no exposure to Greece or Ireland
• 0.35% in Portugal — Parpublica 0.14%— Portugal Telecom 0.21%
• 5.45% in Italy— e.g. Lottomatica, A2A, Unicredit, Intesa, Tel Italia
• 5.13% in Spain— e.g BBVA, Santander, Telefonica, Gas Natural, Iberdrola
Source: Invesco as at 30 April 2011. 1Exposure excludes government & government agency. There is no guarantee that the securities mentioned will be held by Invesco funds in the future..
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High yield fundamentals supportive
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1999 2001 2003 2005 2007 2009 2011
Actual Forecast
3.5
3.7
3.9
3.1
2.7
4.1
3.6
3.4
4.1
4.4
2
3
4
5
2007 2008 2009 2010 2011E
Net debt/EBITDA EBITDA/Interest
Moody’s Europe trailing 12-month high yield default rate with forecast
Source: Left hand chart, Moody’s Monthly Default Report, April 2011. Right hand chart, JP Morgan data as at January 2011. Data based on 56 high yield companies.
European high yield credit ratio forecasts
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Source: Merrill Lynch European Currency High Yield Index, ex financials, 2% constrained.
But yields now quite low
0
5
10
15
20
25
30
<5% 5%-6% 6%-7% 7%-8% 8%-9% 9%-10% >10%
Mar-11 Mar-10
% of the high yield market (excluding financials) in each yield cohort
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Invesco Euro Corporate Bond Fund Performance %
4.05
9.48
11/96
12.61
31.17
3 years
2.49
6.24
13/85
13.10
35.37
5 years
2.37
6.02
13/84
12.62
34.55
Since Launch (31 March 2006)
n/an/aInvesco Euro Corporate Bond Fund
Annualised returns
4.312.97Invesco Euro Corporate Bond Fund
1.811.23Mstar GIF OS EUR Corporate Bond
20/14814/158Rank11Quartile
n/an/aMstar GIF OS EUR Corporate Bond
1 yearYTDCumulative returns
Past performance is not a guide to future returns
Performance figures are shown in euro on a mid-to-mid basis, for the ‘A’ share class, inclusive of gross reinvested income and net of the annual management charge and all other fund expenses. The figures do not reflect the initial charge paid by individual investors. Data Source © 2011 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information All data as at 30 April 2011. S&P Fund Rating as at February 2011.
1
15.6
30.2
2009
3
-7.8
-6.6
2008
2
-1.1
-0.7
2007
4.2Mstar GIF OS EUR Corporate Bond
1Quartile
6.3Invesco Euro Corporate Bond Fund
2010Calendar year
Appendix
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Credit ex financials
0
50
100
150
200
250
300
350
400
450
00 01 02 03 04 05 06 07 08 09 10 11
Telecoms
Utilities
Industrials
2
3
4
5
6
7
8
00 01 02 03 04 05 06 07 08 09 10 11
Telecoms
Utilities
Industrials
Euro investment grade spreads (bps) Euro investment grade yield to maturity (%)
Source: Merrill Lynch, data as at 29 April 2011.
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High yield spreads and yields
300
400
500
600
700
800
900
1000
Apr 10 Jul 10 Oct 10 Jan 11 Mar 11
AllBB RatedB RatedAll ex financials
5
6
7
8
9
10
11
12
Apr 10 Jul 10 Oct 10 Jan 11 Mar 11
AllBB ratedB ratedAll ex financials
Spread (bps) Yield to maturity (%)
Source: Merrill Lynch, data as at 30 April 2011, European Currency Index includes sterling and euro denominated bonds.
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Banks raising capital and de-risking
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
UBS
Cre
dit S
uis
seAm
erica
n E
xpre
ssM
org
an S
tanle
ySta
ndard
Chart
ere
dCitig
roup
RBS
Barc
lays
HSBC
JP M
org
an
LBG
ING
Inte
sa S
anpaolo
Santa
nder
DB
BN
PN
ord
ea
Unic
redit
SunTru
stW
ells
Farg
oBBVA
SocG
en
Cre
dit A
grico
leBank o
f Am
erica
Capital O
ne
Bank o
f Ir
ela
nd
AIB
Source: Left hand chart, Goldman Sachs. Data to latest filings which is 1Q11 except Bank of Ireland & AIB which are 4Q10. Right hand chart, Credit Suisse to 31 March 2011. There is no guarantee that the securities mentioned will be held by Invesco funds in the future.
110
115
120
125
130
98 99 00 01 02 03 04 05 06 07 08 09 10 11
Banks’ core T1 ratios European banks’ aggregate loan to deposit ratio
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German bund yields (%)
2
3
4
5
6
00 01 02 03 04 05 06 07 08 09 10 11
10-year yield (%)
Source: Bloomberg as at 29 April 2011.
2
3
4
5
6
00 01 02 03 04 05 06 07 08 09 10 11
30-year yield (%)
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Source: Invesco to 30 April 2011. NR is unrated investment grade bonds.
Invesco Euro Corporate Bond Fund Credit exposure %
0
10
20
30
40
50
60
70
80
90
100
Apr-09 Oct-09 Apr-10 Oct-10 Apr-11
Cash+AAA AA A BBB High Yield NR
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Invesco Euro Corporate Bond FundTop 10 country exposures %1
% of fundCountry
Total
Switzerland
Canada
Netherlands
Australia
Italy
Spain
US
UK
Germany
France
89.83
1.40
1.88
4.19
4.87
7.41
8.09
10.44
16.44
17.36
17.75
Source: Invesco as at 31 March 2011. 1Exposure refers to ultimate parent country of issuer.
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Invesco Euro Corporate Bond Fund Issue and issuer exposure
2.70Societe Generale1.74Germany 2.5% 2014
22.89
1.37
1.42
1.45
1.60
1.78
2.13
2.82
2.93
5.66
% of fund
Total Top 10 bond issues
Societe Generale 7.756% (T1) 2013
Allianz 5.75% 2021
Scottish & Southern 7.756% 2015
Barclays 4.75% (T1) 2020
CDP* 3.5% 2020
Italy 2.25% 2013
Wal-Mart 4.875% 2029
Lloyds 6.439% ECN 2020
Germany 2.5% 2021
Top 10 issues
1.78CDP
1.87Telefonica
2.24RBS
2.25EDF
2.82Wal-Mart
2.93Republic of Italy
3.58Barclays Bank
4.43Lloyds Banking Group
31.99Total Top 10 bond issuers
7.40Federal Republic of Germany
% of fundTop 10 issuers
Source: Invesco as at 31 March 2011. *CDP is a wholly owned subsidiary of the Caisse de depot et placement du Quebec and is AAA/AAA. There is no guarantee that the securities mentioned will be held by Invesco funds in the future.
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Invesco Euro Corporate Bond Fund Performance characteristics
Source: Mercer MPA databases from 1 April 2006 to 31 December 2010. Performance figures are for the Invesco Euro Corporate Bond Fund, A share class, and are shown in Euros on a total return basis, and gross of the annual management charge and all other fund expenses. The figures do not reflect the initial (sales) charge paid by individual investors. Past performance is not a guide to future returns. S&P Fund Rating as at February 2011.
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Invesco Euro Corporate Bond Fund Performance characteristics
Source: Mercer MPA databases from 1 April 2006 to 31 December 2010. Performance figures are for the Invesco Euro Corporate Bond Fund, A share class, and are shown in Euros on a total return basis, and gross of the annual management charge and all other fund expenses. The figures do not reflect the initial (sales) charge paid by individual investors. Past performance is not a guide to future returns. S&P Fund Rating as at February 2011.
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Invesco Euro Corporate Bond Fund Performance characteristics
Source: Invesco as at 31 December 2010. Based on Mercer MPA performance characteristic data. S&P Fund Rating as at February 2011.
• Ranked 1 (of 47) for return
• Ranked 1 (of 47) for excess return
• High confidence level and tracking error – indicating that historical results were statistically different from the Reference Index
• Sharp ratio of 0.8 ranked 4 (of 47) - the higher the Sharpe ratio, the greater the excess return (or Risk Premium) earned per unit of risk
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Important information
This presentation is for Professional Clients only and is not for consumer use.
The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested.
Past performance is not a guide to future returns.
Where Lewis Aubrey-Johnson has expressed opinions, they are based on current market conditions and are subject to change without notice. These opinions may differ from those of other Invesco investment professionals.
Where securities are mentioned in this document they do not necessarily represent a specific portfolio holding and do not constitute a recommendation to purchase or sell.
The IP Corporate Bond Fund, the Invesco Euro Corporate Bond Fund, the IP Monthly Income Plus Fund and the Invesco Pan European High Income Fund invest in bonds and other fixed income securities that are subject to the risk that issuers do not make payments on such securities. The funds may be adversely affected by a decrease in market liquidity which may impair the fund’s ability to acquire or to dispose of securities at their intrinsic value. The Invesco Euro Corporate Bond Fund may invest in high yield bonds which are regarded as being more speculative (than investment grade bonds) as to the issuer’s ability to make payments of principal and interest.
The yields shown are expressed as a % per annum of the current NAV of the fund. They are an estimate for the next 12 months, assuming that the fund’s portfolio remains unchanged and there are no defaults or deferrals of coupon payments or capital repayments. Cash income is estimated coupons from bonds.
The gross current yield is an indication of the expected cash income over the next 12 months.
The estimated gross redemption yield is a longer-term picture indicating expected annual total return. This means that in addition to expected cash income, it includes the amortised annual value of unrealised capital gains or losses of bond holdings currently held by the fund, calculated with reference to their current market price and expected redemption value made upon maturity of the bonds.
Neither of the yields is guaranteed. Nor do they reflect the fund charges or the initial charge of the fund. Investors may be subject to tax on distributions.
The distribution and the offering of the Invesco Euro Corporate Bond Fund and the Invesco Pan European High Income Fund in certain jurisdictions may be restricted by law. Persons into whose possession this document may come are required to inform themselves about and to comply with any relevant restrictions. This does not constitute an offer or solicitation by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation.
Persons interested in acquiring the funds should inform themselves as to (i) the legal requirements in the countries of their nationality, residence, ordinary residence or domicile; (ii) any foreign exchange controls; and (iii) any relevant tax consequences.
For the purposes of UK law, the funds are recognised schemes under section 264 of the Financial Services & Markets Act 2000.
The protections provided by the UK regulatory system, for the protection of retail clients, do not apply to investments in the funds. Compensation under the UK’s Financial Services Compensation Scheme will not be available and UK cancellation rights do not apply to this fund.
Further information on our products is available using the contact details shown.
Invesco Global Investment Funds Limited and Invesco Fund Managers Limited Perpetual Park, Perpetual Park Drive, Henley-on-Thames, Oxfordshire RG9 1HH, UKWebsite: www.invescointernational.co.uk / www.invescoperpetual.co.ukAuthorised and regulated by the Financial Services Authority.
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Important information
This document is exclusively for use by professional clients in Continental Europe and is not for consumer use. Data as at 30/04/11, unless otherwise stated. Please do not redistribute this document.
This marketing document does not form part of any prospectus. Whilst great care has been taken to ensure that the information contained herein is accurate, no responsibility can be accepted for any errors, mistakes or omissions or for any action taken in reliance thereon. Opinions and forecasts are subject to change without notice. The value of investments and the income from them can go down as well as up (this may partly be the result of exchange rate fluctuations in investments which have an exposure to foreign currencies) and investors may not get back the amount invested. Past performance is not an indication of future performance, provides no guarantee for the future and is not constant over time. The performance data shown does not take account of the commissions and costs incurred on the issue and redemption of units. Any reference to a ranking, a rating or an award provides no guarantee for future performance results and is not constant over time. There is potential for increased volatility in emerging stock markets, and only a modest proportion of investable wealth should be invested in them. Investing in funds focused on specific themes, particular areas of the market or small capitalisation companies may increase the risk associated with them due to the volatility and/or the concentrated nature of these investments. Investors should read the fund simplified and full prospectuses for specific risk factors and further information. This document is not an invitation to subscribe for shares in the fund and is by way of information only. It is notintended to provide specific investment advice including, without limitation, investment, financial, legal, accounting or tax advice, or to make any recommendations about the suitability of the fund(s) for the circumstances of any particular investor. You should take appropriate advice as to any securities, taxation or other legislation affecting you personally prior to investment. Asset management services are provided by Invesco in accordance with appropriate local legislation and regulations. www.invescoeurope.com
Additional information for professional clients in Germany, Austria and Switzerland
This document is issued in Germany by Invesco Asset Management Deutschland GmbH regulated by Bundesanstalt für Finanzdienstleistungsaufsicht. This document is issued in Austria by Invesco Asset Management Österreich GmbH and in Switzerland by Invesco Asset Management (Schweiz) AG. Subscriptions of shares are only accepted on the basis of the current fund prospectus. Swiss investment professionals should consider this document only in connection with the relevant monthly fund fact sheet which contains further performance information. Prospectuses and reports are available free of charge at Invesco Asset Management Deutschland GmbH, An der Welle 5, D-60322 Frankfurt/M., Invesco Asset Management Österreich GmbH, Rotenturmstrasse 16-18, A-1010 Vienna, and Invesco Asset Management (Schweiz) AG, Stockerstrasse14, CH-8002 Zurich. Paying agent for the funds registered for sale in Switzerland: BNP Paribas Securities Services, Paris, Zürich branch, Selnaustrasse 16, CH-8002 Zurich.