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1
Tina Söderlund-Boley Head of Institutions
& Intermediaries
Northern Europe
Citywire Berlin 16 -18 November 2011
Daniel Durrer Head of Fund Distribution
Intermediary Clients
Continental Europe
2
Convertible bonds
Abundant opportunities for absolute returns
3
Introduction to GAM Fixed Income
4
GAM Holding AG
GAM Holding AG is an independent group,
entirely dedicated to asset management
— Over 1,000 staff in 13 countries
worldwide
Consists of two leading investment managers:
GAM and Swiss & Global Asset Management
— Each have well-established capabilities
and brands
— Complementary investment offerings
— Operate autonomously, but co-operate
and collaborate where it is in the best
interest of clients
An independent, diversified asset management business
GAM Holding AG1
USD 134.8bn
AuM USD 60.2bn AuM USD 94.5bn
Source: GAM as at 30 Jun 2011 1 Group AuM excludes USD19.9 billion of funds advised by GAM and distributed by Swiss & Global Asset Management.
5
GAM overview
GAM is an independent, active investment
manager
USD 60.2 billion in AuM across ~ 60 different
strategies
GAM AuM by Client Type GAM AuM by Strategy
Private clients
Institutional clients
Wholesale fund distribution
Managed portfolios
& composites
Equity Fixed income
Abs. return single manager Multi-manager
Managed portfolios
& composites
54%
54%
24%
11% 11% 11%
29% 23%
23%
14%
Source: GAM
Assets under management breakdowns are as at 30 Jun 2011. GAM reports its assets under management breakdowns on a half yearly basis in line with Swiss accounting rules which
apply to our parent company, GAM Holding AG. Holdings and allocations are subject to change.
6
GAM Fixed Income Investment team Expertise and experience spanning all fixed income and currency sectors globally
Source: GAM
As at 31 Oct 2011
Dealers
Specialist
Investment
Teams
Co-Managers
Robert Champion
Tim Haywood and Daniel Sheard
Investment
Grade and
Asset-Backed
Securities
Darren Reece
Haroon Shaikh
Amy Kam
Jack Flaherty
Casey Derbyshire
Developed
Markets and
Interest Rates
Philip Mann
Tom O’Shea
High
Yield
Johannes Wagner
Emerging Mkts
& Foreign
Exchange
Paul McNamara
Caroline Gorman
Denise Prime
Ben Helm
Alex McKnight
Convertible
Bonds
Foreign
Exchange
Mark Dragten
Chris Jarman Paul Ferrier
7
Fixed Income strategies
USD 26.6bn in assets for institutional and wholesale clients globally
Source: GAM as at 30 Jun 2011
Holding and allocations are subject to change. Latest data available. Assets under management are released on a six-monthly basis in line with GAM Holding AG policy.
Long only strategies
● Global
● International
● US Core Plus
● Local Emerging Bonds
● Convertible Bonds
Absolute return strategies
● AR Bond
● AR Bond – Plus
● AR Bond – Defender
● Global Rates
● Discretionary FX
● Emerging Market Rates
● Convertible Bonds
USD
10.6bn USD
16.0bn
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Convertible bond team
Global, absolute return approach to investing in convertibles
— Flexibility in trading styles enables performance in most macro environments
Two highly experienced convertibles managers
— Combined 35 years experience analysing, selecting and structuring convertibles trades
— Backed by the full resources of an established fixed income team
Demonstrated skill both in managing the risks and extracting value from convertible bonds
Six year track record of delivering consistent returns via their offshore fund
Asymmetric asset class with low correlation with other fixed income strategies, equity indices and traditional bond benchmarks
Source: GAM
9
Ben Helm Investment Manager
Convertible Bonds
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Asymmetric return profile gives convertibles
significant benefits over other structures:
— Are effectively corporate bonds with an
embedded call option on the stock,
providing upside potential
— Incorporate the security of a floor on the
corporate bond, protecting the downside
Different trading strategies work in each part
of the curve allowing investors to profit from all
of them
Structural support for convertibles segment:
— Larger and more diversified investor
base following the stresses of 2008
The case for investing in convertible bonds Attractive features embedded in convertibles are being recognised by a growing set of market participants
Source: GAM
0
20
40
60
80
100
120
140
160
0 20 40 60 80 100 120 140 Stock price (USD)
CB
va
lue
(U
SD
)
Parity CB Price Bond floor 'Soft' bond floor
Example: A typical convertible bond payoff
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Why convertibles?
Asymmetry
— Bond protection
— Equity upside
— Optionality
Superior risk return profile to credit or equities
Source: GAM
0
20
40
60
80
100
120
140
160
0 20 40 60 80 100 120 140
Stock price (USD)
CB
va
lue
(U
SD
)
Parity CB Price Bond floor 'Soft' bond floor
Example: A typical convertible bond payoff
12
Why UCITS III?
Don’t follow the index!
Don’t take risks you don’t like
— Rate, credit, equity…
Do selectively hedge broad
market risks
Do structure positions to profit
during market falls
Bond Equity
Cheap/mispriced
Expensive
The fair value line
Source: GAM
UCITS III: Why actively manage and hedge?
0
20
40
60
80
100
120
140
160
0 20 40 60 80 100 120 140
Stock price (USD)
CB
va
lue
(U
SD
)
Parity CB Price Bond floor 'Soft' bond floor
Example: A typical convertible bond payoff
13
How do we manage convertibles?
The index doesn’t work
CB Arbitrage as a hedge fund doesn’t fit within a UCITS framework
Portfolio of bonds targeting credit and equity themes while hedging
specific and broader risks does work
— Since 2005 in JB Absolute Return funds and since 2010 in UCITS
form via GAM Star Global Convertible Bond
Background
14
Historical performance of convertibles vs other asset classes Convertible bonds have outperformed both equities and high yield bonds over time
Source: Bloomberg, Thomson Reuters
Performance from 31 Dec 1997 to 30 Sep 2011
15
Investment philosophy and process
Convertible bond markets are ultimately driven by economic fundamentals
— Understanding the macro backdrop is key to making money from convertibles
Structural mis-pricing occurs due to imperfect information available in equity and bond markets
— Non-economic decision-making
— Variation of macroeconomic influences over time
— Influence of market backdrop, sentiment and geography on behaviour
Dominance of traditional, constrained investors perpetuate these inefficiencies
— Greed, fear and forced selling provide ongoing opportunities
Issuer
filtration
and analysis
Sectoral
analysis
Portfolio
construction
Macro:
Global outlook
for local selection
1. 2. 3. 4.
Three types of trading
strategy create a
diversified portfolio
First and foremost
a macro house
Opportunities emerge
through sectoral and
regional filters
Financial, structural,
strategic analysis; not
just number crunching
Structural mispricings are frequent and can be exploited
Investment process
So we seek to use the
full set of tools
available to profit from
these inefficiencies
16
Portfolio construction – Investment strategies across the curve
Growth
(Upswing)
Recessionary
(Towards the
trough)
Mispriced
0
20
40
60
80
100
120
140
160
0 20 40 60 80 100 120 140 Stock price (USD)
CB
va
lue
(U
SD
)
Directional Trades
(Long)
Directional Trades
(short) Different trade types work
across different parts of the
curve
The weight of the portfolio to
any trade type at a given point
in time is aligned with overall
market conditions
Broad market conditions most
supportive of each type of trade
are shown in the lower graph
Economic cycle – Recovery
Parity
Convertible Bond Price
Bond floor
'Soft' bond floor
Economic cycle – Growth
Economic cycle –Recessionary
Each strategy works in a different part of the curve
Source: GAM
Weig
ht o
f
po
rtfo
lio a
sse
ts
Focus on trade type
Recovery
(Turning point)
Bond Mispriced Equity Balanced
17
How does our hedging work?
Long Only Convertible Portfolio
The Gap Risk Protection
Fund V
alu
e
Equity Market
Source: GAM
18
Appendix
19
GAM Star Global Convertible Bond – USD Performance from 17 Dec 2010 (inception) to 31 Oct 2011
Past performance is not indicative of future performance. Performance is provided net of fees.
Source: GAM, Bloomberg
20
GAM Convertible Bond Hedge - USD Performance from 1 Jul 2009 (inception) to 31 Oct 2011
Past performance is not indicative of future performance. Performance is provided net of fees.
Source: JP Morgan Hedge Fund Services (Ireland) Ltd, Bloomberg
21
Convertible Bond Portfolio of JB ARBF in EUR Performance from 29 Dec 2006 (inception) to 31 Dec 2010
Source: GAM
Past performance is not indicative of future performance. Performance is provided net of fees. NOTE: this track record represents a carve-out of the actual convertible bonds portfolio of
the Julius Baer Multibond - Absolute Return Bond fund and is not available for direct investment.
FOR ILLUSTRATIVE PURPOSES ONLY
22
KFW convertible versus straight bonds Mean reversion plus free optionality
Source: Bloomberg
BP
S
23
Bulgari – Pays for itself, and then some more ...
Bulgari 5 3/8% 2014
100
140
180
220
260
300
4.0 4.6 5.2 5.8 6.4 7.0 7.6 8.2 8.8 9.4 10.0 10.6 11.2 11.8
Source: Bloomberg
Fair Bond Price Actual Price
Stock Price
Equity Parity Value
Bo
nd
Price
24
Autonomy – Takeover ratchet pays off again
Source: Bloomberg
Bo
nd
Price
25
Source: Bloomberg
Cap Gemini – A loss making position, but the bond behaved as it should B
on
d P
rice
26
Cap Gemini – A loss making position, but the bond behaved as it should
27
Shire Pharmaceuticals – Cheap bond eventually noticed...
Fair Bond Price Actual Price
Shire 2 3/4% 2014
100
105
110
115
120
125
130
14 15 16 17 18 19 20 21 22 23 24
Stock Price
Source: Bloomberg
BP
S
28
Contacts at GAM
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Contacts at GAM
Daniel Durrer - Head of Fund Distribution Intermediary Clients Continental Europe
Daniel Durrer is Head of Fund Distribution Intermediary Clients Continental Europe. He has over 20 years'
experience in the investment fund industry and has held different positions in the marketing, product management
and fund distribution units of the Swiss Bank Corporation and UBS. Prior to joining GAM, Daniel was responsible
for the business development of the investment fund unit of UBS in the Cayman Islands. He was educated in
Switzerland and holds a degree in Marketing Planning. He is based in Switzerland.
Email: [email protected]
Tine Söderlund-Boley - Head of Institutions & Intermediaries Northern Europe
Tina Söderlund-Boley is Head of Institutions & Intermediaries Northern Europe. Prior to joining GAM in May 2000,
she worked for Independent Investment Group, SEB & Öhman Fondkommission in Sweden. Tina Söderlund-Boley
holds a Master of Law from Uppsala University, Sweden. She is based in London.
Email: [email protected]
30
Disclaimer
Source: GAM unless otherwise stated (Unless otherwise noted, where shown, performance is shown net of fees, on a NAV to NAV basis).
The material herein is confidential and is intended solely for the use of the person or persons to whom it is given or sent and may not be reproduced, copied or given, in
whole or in part, to any, other person. It is aimed at sophisticated, professional, eligible, institutional and/or qualified investors who have the knowledge and financial
sophistication to understand and bear the risks associated with the investments described herein. GAM has not independently verified information from other sources
and no assurance can be given as to whether such information is accurate, true or complete and GAM makes no warranty, expressed or implied, regarding such
information. The views expressed herein are those of the speakers at the time of the conference (3 October 2011) and may not reflect their views at any time thereafter.
The views of external speakers may differ from those of GAM.
Nothing contained herein constitutes investment, legal, tax or other advice nor is it to be solely relied on in making an investment or other decision. It is not an invitation
to subscribe and is by way of information only. Subscriptions will only be received and shares or units (‘Shares’) issued on the basis of the current prospectus for the
relevant fund. Copies of funds’ prospectuses and financial statements can be obtained free of charge from GAM Fund Management Ltd, George's Court, 54-62
Townsend Street, Dublin 2. Shares in the funds are not available for sale in any state or jurisdiction in which such sale would be prohibited.
Some of the funds mentioned herein are not subject to approval or regulation by the Central Bank of Ireland and are not subject to the benefit of any compensation
arrangements. Moreover, these funds are not regulated under the Financial Services and Markets Act 2000 and consequently no protection is provided by the UK
regulatory system and benefits available under the UK Financial Services Compensation Scheme do not apply.
GAM Star Fund plc is authorised as a UCITS pursuant to the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations,
2003 (S.I. No.211 of 2003) and is a recognised scheme under the Financial Services and Markets Act 2000. The fund is managed by GAM Fund Management Limited
which is regulated by the Central Bank of Ireland.
In the United Kingdom, this material has been issued and approved by GAM London Ltd, 12 St. James' Place, London SW1A 1NX, authorised and regulated by the
Financial Services Authority.