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Ignis Absolute Return Government Bond Fund Diversified returns from global government bonds and currencies
This presentation is intended for professional clients and investment professionals
only and should not be relied upon by retail investors.
Investment case
Ignis Fixed Income
Investment process
Performance
Appendix: example trade strategies
Agenda
March 12
1
Ignis Absolute Return Government Bond Fund
Investment case
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Ignis Absolute Return Government Bond Fund
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Investment case
Fixed income: limited potential for long-only strategies
Source: DataStream at 29/02/2012.
Performance:
Gains have been strong and yields
are close to historic lows (with some
divergence)
Outlook:
Correction (when it comes) will lead
to capital losses
0
2
4
6
8
10
12
14
16
G10 10 year sovereign yields
Netherlands Germany France
Italy Japan UK
US Belgium Canada
Switzerland Sweden
List header three List header four List header one List header two
Low interest rate environment
Unspectacular economic growth
No clear trends in asset markets
Highest quality and most liquid debt instruments (long and short exposure)
Foreign currency - max 25% of total risk budget (G10 only)
The Ignis Rates proposition An innovative fund:
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*The fund’s target volatility is a standard deviation level of 4-6%, it is managed to deliver stable returns regardless of market moves.
Designed to deliver: Investing in: Proven performance in:
Performance in all market conditions
Low volatility: 4-6% standard deviation*
Low correlation with other asset classes
Alpha not beta
Investment case
4
Delivering performance in challenging markets
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Investment case
Ignis Absolute Return
Government Bond Fund:
Delivered steady returns
Low correlation with other asset
classes
Low volatility
Alpha rather than beta
-3
-2
-1
0
1
2
3
4
5
6
7
31 Mar 11 30 Apr 11 31 May 11 30 Jun 11 31 Jul 11 31 Aug 11 30 Sep 11 31 Oct 11 30 Nov 11 31 Dec 11 31 Jan 12 29 Feb 12
%
Performance*
Ignis Absolute Ret Gov Bond EUR I class (6.7%)
EONIA (0.8%)
Lipper Global Absolute Return EUR Low (0.1%)
*Source: Lipper, net of fees, since launch on 31/03/2011 to 29/02/2012. EONIA is the rate that large banks use to borrow from, and lend to, one another on the overnight market. Performance comparisons are inappropriate due to the diverse nature of the objectives of the funds populating this sector, including differing benchmarks, risk characteristics and timeframes for delivering performance. Past performance is not a guide to future performance.
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Investment case
Lowly correlated returns
Source: Lipper at 29/02/2012, correlation of daily returns in EUR based on EUR I share class since fund launch on 31/03/2011. Past performance is not a guide to future performance.
Since launch the fund has exhibited low correlation with other asset classes, and a negative correlation with equities:
Ignis Absolute Ret Govt Bond
MSCI World Barclays Capital
Global Aggregate Corporate
Citigroup WGBI ETFS Physical Gold
Ignis Absolute Ret Govt Bond 100% -37% 45% 39% 23%
MSCI World -37% 100% -26% -28% -18%
Barclays Capital Global Aggregate Corporate
45% -26% 100% 92% 34%
Citigroup WGBI 39% -28% 92% 100% 32%
ETFs Physical Gold 23% -18% 34% 32% 100%
Ignis Fixed Income
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Ignis Absolute Return Government Bond Fund
7
Stable, experienced team
Flexible, innovative approach
Proprietary technology and investment tools
Led by Ignis CIO Chris Fellingham
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Ignis Fixed Income
Ignis Fixed Income: a broad range of capabilities
39%
28%
10%
23%
Direct funds under management - €60.0bn*
Sovereign and related supras, inflation linked
Liquidity
Stock lending
Credit
*Source: Internal at 30/09/2011.
Manages €23.0bn*
Specialises in government bonds
and currencies
Multi-specialist structure provides
combination of perspectives
Team includes chief economist
Stuart Thomson
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Ignis Fixed Income
Ignis rates team: complementary skill set
*Source: Internal at 30/09/2011. (Figures in brackets are number of years of investment experience).
Head of Rates
Quant Team Macro
Economics Portfolio
Management Liquidity, Repo and
Collateral Management
Russ Oxley (14)
Adam Purzitsky (7) Ross Crawford (11) Josh Heming (13)
Stuart Thomson (26)
Grant Peterkin (12) Paul Shanta (3)
Jin Wong (5) Aaron Rock (5)
Brian Jack (11) Rowan Gallagher (5) Colin Goymer (16)
CIO
Chris Fellingham (26)
Investment process
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Ignis Absolute Return Government Bond Fund
10
11
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Investment process
Investment process We believe alpha is created by well thought out macroeconomic views applied precisely in a risk controlled process
Value Clarity and
precision Control
Proprietary
model
Investment Themes Meeting
Academic research/
Think-tanks
Investment Banking Reports/ Market
Intelligence
Economic Data
Themes meeting is multi-disciplinary
Experienced team with a range of backgrounds
Asset size ensures good access to information
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Investment process
Value: generating the macro view
Key Investment Themes
Asset preferences
Academic research/
Think-tanks
Developed country carry strategies, directional bets on global policy rates
Directional bets on developed market forward rates driven by global competition for capital
Directional bets on risk free forward rates driven by structural supply and demand
Technical analysis; macroeconomic medium term view; Short term view driven by market information
Macro driven: isolate inflation risk
Opportunities between risk free and derivative curves
Volatility positions on developed market bonds or interest rate derivatives
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Investment process
Uncorrelated performance sources: the Arc of Alpha
< 2
2-15
>15
FX
Inflation
Asset
Swaps
Volatility
0.00
1.00
2.00
3.00
4.00
5.00
German Forward rate curve Forward - 02/11/2011
Forward - 04/01/2011
-3.00
-2.00
-1.00
0.00
1.00
2.00
3.00
1y0y 1y2y 1y4y 1y6y 1y8y 1y10y 1y12y 1y14y 1y16y 1y18y 1y20y 1y22y 1y24y 1y26y 1y28y
%
14
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Investment process
ClearCurve: a key proprietary tool Deconstructing the forward rate curve
Calculates forward curves for all instruments
Assists in benchmark construction and portfolio implementation
Dominated by changes in domestic structural supply and demand / regulation
Global competition for capital / global macro Expectation of base rates
Source: ClearCurve, November 2011.
Monitors portfolio risk
Scales active positions according to risk budget
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Investment process
Implementing views using ClearCurve German Forward Curve
Potential positions
Carry:
Long 1y4y fwd
- Long 5yr bund, short 4yr bund
Directional:
Long 1y9y fwd
- Long 10yr bund
Relative value:
Long 1y14y and 1y19y
short 1y16y and 1y17y
- Long 15yr, 16yr and 20yr bund, short
14yr, 18yr and 19yr bund
Source: ClearCurve, October 2011.
G10 sovereign bonds
Bond futures
Interest rate swaps
OTC options (on rates and currencies)
Swaptions
Currency forwards
Inflation swaps and options
Positions are collateralised daily
Highly liquid instruments used to implement alpha strategies:
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Investment process
Portfolio risk is controlled and managed through:
Front, UBS Delta, and ClearCurve
Fund manager parameters and oversight:
- Target volatility range: 4-6% standard deviation
- Average monthly VaR of 2.3%* since inception
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Investment process
Risk management at core of process
*VaR at 99% confidence level, source Ignis 29/02/2012. **Source: Ignis at 29/02/2012. Past performance is not a guide to future performance.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
31 Mar 11 31 May 11 31 Jul 11 30 Sep 11 30 Nov 11 31 Jan 12
Ex ante annualised volatility**
Ex Ante Volatility
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Investment process
Diversified strategies: effective in a volatile environment
Ex-a
nte
tra
ckin
g er
ror
%
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
18
Source: UBS Delta, data since launch on 31/03/2011 to 29/02/2012. The fund takes risks by implementing different strategies. If each strategy was well correlated, the total risk of the fund would be a sum of the parts. In fact, the strategies are lowly correlated. This creates a diversification benefit, reducing the fund’s total volatility.
Performance
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Performance
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Performance
Outperformance since launch
*Source: BNY/Datastream, total return, net of fees, since launch on 31/03/2011 to 29/02/2012. EONIA is the rate that large banks use to borrow from, and lend to, one another on the overnight market. Past performance is not a guide to future performance.
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
31 Mar 11 30 Apr 11 31 May 11 30 Jun 11 31 Jul 11 31 Aug 11 30 Sep 11 31 Oct 11 30 Nov 11 31 Dec 11 31 Jan 12 29 Feb 12
Performance*
Ignis ARGBF EUR Class I
EONIA^
Conclusion
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Ignis Absolute Return Government Bond Fund
21
List header three List header four List header one List header two
ClearCurve – developed by Ignis in 2006
Unique in extracting forward rates from G10 government bonds
Provides a more accurate view of the path of G10 interest rates
High level of experience in both long and short investing
Chief economist part of team
Risk management embedded within process
Team have dedicated quant specialists
What sets us apart?
March 12
Alpha not beta Diversified skill set Innovative approach
Performance in all market conditions
Non-directional (although core views taken)
Lowly correlated to credit, gilts, gold and equities
Manager not constrained by any particular biases
Ignis Absolute Return Government Bond Fund
22
^This is the rate that large banks use to borrow from, and lend to, one another on the overnight market. *Performance fee is net of fees, over compounded cash rates and subject to a high water mark.
Fund manager Russ Oxley (lead manager), Stuart Thomson (co manager)
Launch date 31 March 2011
Sector Lipper Absolute Return Euro Low
Structure UCITS III SICAV
Domiciled Luxembourg
Benchmark EONIA^
Liquidity Daily dealing
Minimum investment EUR A Class: €1,000 EUR I Class: €1,000,000
Annual management fee EUR A Class: 1% EUR I Class: 0.3%
Performance fee* Fund manager is entitled to 10% of performance generated
above EONIA^ with a high water mark
Registered for sale: Luxembourg, UK, Spain, Germany, Austria, France, Italy, Sweden,
Switzerland and Finland
Fund profile
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Ignis Absolute Return Government Bond Fund
Appendix
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Ignis Absolute Return Government Bond Fund
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Example trade strategies
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Ignis Absolute Return Government Bond Fund
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Strategy: sell European volatility
Expectation that if interest rates remain unchanged for an extended period, in line with weak growth, then volatility should also be low
However, in October volatility at the front end of the European curve was high
Risk bucket: volatility
The fund sought to take advantage of this by using swaption strategies to sell volatility
Profit: 90bps
Theme: low growth for longer
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Example trade strategies
Entry Profit taken
No
rmal
ised
bp
s
Source: Front Arena internal system at 13/02/2012
Strategy: long 10y gilts versus 10y bunds
Expectation that growth will be lower for longer
Yet, risk that Germany will allow ECB to formally do QE
Adopted a net neutral directional view of market (in line with strategy of owning “real AAA”)
Risk bucket: 2 - 15 years
Entered at spread of 60bps at end September
Profit taken when spread went to zero
Profit: around 100bps
Theme: low growth for longer
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Example trade strategies
Entry
Profit taken
Source: Bloomberg at 17/01/12
% %
11.5
22.5
33.5
44.5
55.5
6
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
US 10y Yield German 10y Yield UK 10y Yield
-20
0
20
40
60
80
100
120
Dec-06 Dec-07 Dec-08 Dec-09 Dec-10 Dec-11
UK vs Germany 10y Spread
Strategy: Short bunds versus other markets
Front end of German market anchored by falling rate expectations
Expect concern over the credit quality of Germany - who will foot the bill for euro survival - to come through the 5y5y point in the curve
Risk bucket: 2 - 15 years
Fund holds long 5y5y positions in Australia and US versus short 5y5y bunds position
Profit: 40bps
Theme: eurozone concerns
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Example trade strategies
Following the failed auction in Germany the market turned on all Euro assets causing a 50bps relative sell off in bunds versus 10y UK bonds
Source: Bloomberg/ClearCurve at 17/01/2012.
%
%
Strategy: long UK
Perceived that the structural demand at the long end of the UK curve by pension funds and institutional buyers was not being priced in – mid 2011
Risk bucket: > 15 years
Entered into core strategic position of long UK forwards
Market corrected H2 2011
Profit: 70bps
Trade re-entered in February 2012 at 3.7%
Theme: structural demand for UK longs
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Example trade strategies
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Re-entry
Profit taken
Entry
Source: ClearCurve at 13/02/2012.
%
Strategy: long US 10y5y
Sought to take advantage of Operation Twist
Anticipated Fed would:
- Sell short-dated bonds
- Purchase longer-dated US bonds
Risk bucket: 2 - 15 years
Fund rotated out of long 5y5y US position into long 10y5y
Profit: 45bps
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Example trade strategies
Theme: opportunistic trades (Operation Twist)
Source: Clearcurve at 13/02/2012.
%
Entry
Profit taken
Strategy: short UK 1y9y
Gilt futures at expensive levels versus bonds driven by demand from foreign investors
UK Treasury 8y21y – cheapest to deliver – reached attractive levels
Identified possible arbitrage opportunity using a negative forward yield versus the UK Treasury 3.75y21y if rate fell below 0%
Risk bucket: 2 - 15 years
Entered trade in late November at -0.25% and set 5% target
Exited in early December when target reached
Profit: 33bps
Theme: opportunistic trades (gilt futures)
-2
0
2
4
6
8
10
12
Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12
1y9y Forward
Target: 5%
Entry: 0%
March 12
Example trade strategies
31 Source: ClearCurve at 13/02/2012.
%
Entry
Profit taken
32
March 12
Ignis Absolute Return Government Bond Fund
Contact us
France and Switzerland (French)
Philip Goldsmith, Managing Director Europe
Mob: +41 (0)79 753 35 74 / +44 (0)7836 243 999
Email: [email protected] Iberia and Latin America
Mauro Loran Garcia, Regional Director
Mob: +34 (0)616 463 917
Email: [email protected]
Germany, Austria and Switzerland (German)
André Haubensack, Regional Director
Mob: +41 (0)79 373 79 13
Email: [email protected] Benelux
Ghislaine Fournigault, Regional Director
Tel: +44 (0)20 3003 3125
Email: [email protected]
Italy and Ticino
Arcangelo Barletta, Regional Director
Mob: +39 (0)392 89 60 736
Email: [email protected]
Nordics
Tel: +44 (0)20 3003 3153
Email: [email protected]
Telephone calls may be monitored and/or recorded for the purpose of security, internal training, accurate account operation, internal customer monitoring and to improve the quality of service.
Your main contact Your regional support
European Sales Support Manager Dee Clarkin Tel: +44 (0)20 3003 3127 Email: [email protected]
Business Development Executive Riccardo Villa Mob: +39 (0)347 27 52 557 Email: [email protected]
Business Development Executive Julien Ricklin Tel: +44 (0)20 3003 3124 Email: [email protected]
Business Development Executive Johanna Pollet Tel: +44 (0)20 3003 3128 Email: [email protected]
33
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Ignis Absolute Return Government Bond Fund
Disclosure This information is intended for professional clients and investment professionals only and should not be relied upon by retail investors.
The opinions expressed here represent the views of the fund manager at the time of preparation and should not be interpreted as investment advice. Distribution of this document and the offering of shares in certain jurisdictions may be restricted by law and accordingly persons into whose possession
this document comes are required to inform themselves about and to observe such restrictions. This document does not constitute an offer or solicitation to anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to
make such offer or solicitation.
Further detailed information regarding the Fund, its Prospectus, its latest annual reports and any subsequent half-yearly reports (including information on how to switch, buy and sell units of the Fund and other unit classes available), is available free of charge from Ignis Investment Services Ltd. You can also obtain these documents through
our website www.ignisasset.com/international
Past performance is not a guide to future performance.
The fund takes long and short positions based on the fund manager’s views of the market direction. This means the fund’s performance is unlikely to track the performance of broader bond and equity markets. While this creates the opportunity for the fund to deliver positive returns in falling markets, it also means that the fund could deliver negative returns in rising markets. The value of investments and any income from them can fall as well as rise
and is not guaranteed. Exchange rate movements may cause the value of investments to fluctuate.
The fund is a sub fund of Ignis Global Funds SICAV, an investment company organised under the laws of the Grand Duchy of Luxembourg as a Self Managed SICAV. The investment company has its registered office at Vertigo-Polaris, 2-4 Eugene Ruppert, L-2453 Luxembourg, and is authorised and
regulated by the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg.
The sub fund is a Recognised Scheme in the UK under Section 264 of the Financial Services & Markets Act 2000 and is promoted in the UK accordingly. The sub fund is currently registered for public distribution in the following countries: Luxembourg, UK, Spain, Germany, Austria, France, Sweden and Finland. It is
registered for institutional distribution only in Italy. Copies of all relevant scheme documentation can be obtained free of charge from the locally appointed paying agents. Austrian Paying Agent: Unicredit Bank Austria, 8398 Global Securities Sales & Services, P.O. Box 35, A-1011 Vienna; French Paying Agent: Société Générale SA, 29
Boulevard Haussmann, F-75009 Paris; German Information Agent: Société Générale SA, Neue MainzerStraße 46-50, D-60311 Frankfurt / Main; Italian Paying Agent: RBC Dexia, Via Vittor Pisani 26,20124 Milan; Luxembourg Paying Agent: Société Générale, 11 Avenue Emile Reuter, L-2420 Luxembourg; Spanish Paying Agent: RBC Dexia
Investor Services España SA, calle Fernando El Santo no20, Madrid 28010; Swedish Paying Agent: SEB Merchant Banking, Sergels Torg 2, SE-106 40 Stockholm.
This document has been issued by Ignis Investment Services on behalf of Ignis Global Funds SICAV. Ignis Investment Services is registered in Scotland Number SC101825. Registered Office: 50 Bothwell Street, Glasgow G2 6HR.
Authorised and regulated by the Financial Services Authority.