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For professional adviser use only | www.sandwfunds.com Smith & Williamson A tale of two bond funds Chris Lynas Citywire Private Client Manager Retreat 17-18 th May 2012
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For professional adviser use only | www.sandwfunds.com
Smith & Williamson
A tale of two bond funds Chris Lynas
Citywire Private Client Manager Retreat 17-18th
May 2012
For professional adviser use only | www.sandwfunds.com
2
Short-dated bonds – spotting the opportunity
For illustrative purposes only
For professional adviser use only | www.sandwfunds.com
3
Short-dated Corporate Bond Fund – the proposition
•
A short-dated corporate bond fund
Investing in £, $ and €
bonds
•
Aims to provide investors with a higher yield than cash.
•
Current size £370million *
•
ISAable
•
Target audience:
Investors seeking a better yield than cash without excessive credit risk
With a 12 month+ investing horizon
Underlying yield** GRY**
Retail Share Class 3.8% 1.1%
Institutional Share Class 4.1% 1.5%
*As at 11.05.12. **The Underlying yield reflects the annualised income net of expenses of the Fund as a percentage of the mid-market unit price of the Fund as at the date shown. It is based on a snapshot of the portfolio on that day. It does not include any preliminary charge and investors may be subject to tax on distributions. GRY
stands for Gross Redemption Yield. The GRY is a forecast of the
total return on the Fund taking account of expected income receipts and capital charges if all holdings are held to redemption. Yield figures are unaudited as at 30.04.12.
For professional adviser use only | www.sandwfunds.com
4
Portfolio construction: tramlines for investment
Instrument Range Current (as at 30.04.12)Portfolio holdings 50-75 62
% in any one corporate issuer ≤
5% ≤
2% (1 bond per issuer)
Maturity ≤
6 years 4 years (weighted average maturity)
£ corporate bonds 30-100% 61.9%
$ or €
corporate bonds (hedged back into £) 0-50% 25.8%
Minimum benchmark size ≥
£150 m Per issue
£
supranational bonds 0-20% 0.0%
Gilts 0-10% 9.9%
Cash 0-100% 2.4%
For professional adviser use only | www.sandwfunds.com
5
The bank issue?
•
Current policy is not to invest in banks
•
Preference for transparent balance sheets
•
No appetite for
hybrids or floaters where duration and income returns are harder to predict
•
Systemic risk, corporates
also deposit with and borrow from banks
•
Our pragmatic approach allows us to amend this policy if we feel conditions improve
(but our equally-weighted approach means bank
exposure
would never dominate the portfolio)
For professional adviser use only | www.sandwfunds.com
6
Not chasing yield
BBB (LHS) Duration (RHS)
Source: Smith & Williamson Investment Management, 30.04.12
Years% of portfolio
0.0
5.0
10.0
15.0
20.0
25.0
30.0
35.0
40.0
May-09 Aug-09 Nov-09 Feb-10 May-10 Aug-10 Nov-10 Feb-11 May-11 Aug-11 Nov-11 Feb-120.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
For professional adviser use only | www.sandwfunds.com
7
Invested portfolio characteristics
Source: Bloomberg and Smith & Williamson Investment Management, all data as at 30.04.12.
Credit rating breakdown Sectors Underlying currency breakdown(hedged back to sterling)
GBP USD EURAAA AA ABBB NR Cash
11.4%
11.5%
39.2%34.0%
1.5% 2.4%
74.2%25.8%
0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00%
Utilities
Travel & Leisure
Tobacco
Telecom
Technology
Support Services
Retail
Real Estate
Pharmaceuticals
Oil & Gas
Mining
Media
Life insurance
Insurance
Household Goods
Hotels
Government
Food services
Food Retail
Food Producers
Diversified Operations
Chemicals
Cash
Building materials
Beverages
Aerospace & Defence
For professional adviser use only | www.sandwfunds.com
8
“Quality Street”
The above trademarks are all owned by the relevant companies.
For professional adviser use only | www.sandwfunds.com
9
Investment case summary
•
Unusually prolonged and low cash deposit rates
•
Credit spreads at reasonable levels
•
Conundrum
Take risk on duration
Take risk on credit
•
Our solution: stay low risk in both
Short-dated
High grade credit
A credible & complementary solution for clients frustrated by low returns from cash
For professional adviser use only | www.sandwfunds.com
10
Performance –
Retail ‘A’
share class
Source: Morningstar. Data from launch, mid to mid, excluding initial charges, income reinvested at ex dividend dates, to 30.04.12. *Net of UK basic rate tax
A share class TR daily gross A share class TR daily net*
98
100
102
104
106
108
110
112
114
116
118
Apr
-09
May
-09
Jun-
09Ju
l-09
Aug
-09
Sep-
09O
ct-0
9N
ov-0
9D
ec-0
9Ja
n-10
Feb-
10M
ar-1
0A
pr-1
0M
ay-1
0Ju
n-10
Jul-1
0A
ug-1
0Se
p-10
Oct
-10
Nov
-10
Dec
-10
Jan-
11Fe
b-11
Mar
-11
Apr
-11
May
-11
Jun-
11Ju
l-11
Aug
-11
Sep-
11O
ct-1
1N
ov-1
1D
ec-1
1Ja
n-12
Feb-
12M
ar-1
2A
pr-1
2
For professional adviser use only | www.sandwfunds.com
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Performance –
gross income reinvested
2009 2010 2011 2012
JAN +0.98 -0.62 +0.78
FEB +1.00 +0.18 +0.46
MAR +0.59 -0.05 +0.02
APR +0.56 +0.89 +0.11
MAY -0.40 +0.10 +0.91
JUN +0.35 +0.46 +0.06
JUL +1.41 +0.62 +1.59
AUG +1.47 +1.55 +0.03
SEP +0.47 -0.07 +0.03
OCT +0.15 -0.02 +0.28
NOV +1.02 -0.35 +0.20
DEC -0.08 -0.43 +1.01
YEAR END TOTAL
+4.46 +5.07 +4.59
SINCE INCEPTION
+16.37
2009 2010 2011 2012
JAN +1.01 -0.59 +0.81
FEB +1.03 +0.20 +0.48
MAR +0.62 -0.02 +0.04
APR +0.59 +0.92 +0.13
MAY +0.13 +0.95
JUN +0.49 +0.10
JUL +0.65 +1.61
AUG +0.46 +1.58 +0.07
SEP +0.48 -0.05 +0.06
OCT +0.18 +0.01 +0.31
NOV +1.05 -0.32 +0.24
DEC -0.05 -0.41 +1.04
YEAR END TOTAL
+2.14 +5.43 +4.97
SINCE INCEPTION
+14.71
RETAIL INSTITUTIONAL
Please note figures shown are total return figures. For a period after the Fund declares a dividend other third party data providers may not show net income reinvested immediately, therefore not displaying the total return for that period.
Source: Morningstar. Data from launch, mid to mid, excluding initial charges, income reinvested at ex dividend dates, to 30.04.12.
For professional adviser use only | www.sandwfunds.com
12
Product features•
Dublin ICVC (UCITS)•
FSA recognised•
Single priced income distributing share classes•
ISAable (within a stock & share ISA)•
Available on Ascentric, Cofunds, Elevate, FundsNetwork, Novia, Nucleus, Skandia (this month)
•
Settlement T+4•
Dealing & Valuation: Dealing 5pm, valuation 11.59pm each Irish business day •
XD dates:
Interims:
31 March, 30 June, 30 Sept,
•
Distribution within six weeks of the XD date•
Dividends
Paid without any withholding tax (ideal for gross accounts)
£ Retail £
Institutional $ Institutional € Institutional
Initial 5% 0% 0% 0%
AMC (charged to income) 1% 0.65% 0.65% 0.65%
TER* 1.01% 0.66% 0.66% 0.66%
Minimum investment £1,000 £250,000 $400,000 €300,000
Subsequent investment £500 £500 $25,000 €25,000
* Calculated on a £201m NAV
For professional adviser use only | www.sandwfunds.com
13
Key risks•
Investment does involve risk. The value of investments can go down as well as up and investors may not receive back the original amount invested.
•
The Fund will invest substantially in short-dated corporate bonds globally and will therefore carry a lower degree of interest rate and capital risk than funds investing in long term fixed income or equity securities. However, please note that bond funds may not behave like direct investments in the underlying bonds themselves. By investing in
bond funds the certainty of a fixed income for a fixed period with a fixed return of capital are lost.
•
The Fund will be exposed to credit risk on parties with whom it trades and may also bear the risk of settlement default.
•
When investments are made in overseas securities, movements in exchange rates may have an effect on the value of that investment. The effect may be favourable or unfavourable.
•
Past performance is not a guide to future performance.•
Investment is subject to documentation (Prospectus, Simplified Prospectus and Terms & Conditions), copies of which can be obtained free of charge in English from Smith & Williamson Investment Management Limited, 25 Moorgate, London EC2R 6AY or online www.sandwfunds.com
Important information
For professional advisers only | www.sandwfunds.com
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Global Government Bond Fund – the proposition
•
A fund of global government and investment grade bonds
Investing in mainly index-linked and conventional government bonds
Flexibility to protect against inflation and deflation
Targets protection of capital and lower volatility
Currency and portfolio diversification benefits
ISAble
Launch period closes Friday 25th
May
Approved and regulated by the Irish Financial Services Regulatory Authority, awaiting recognition from the Financial Services Authority.
For professional advisers only | www.sandwfunds.com
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Why are we launching this fund?
•
Global financial background volatile and fraught with risk
•
Forecasting uncertainty high
•
Persistent low interest rates
•
2 -
4% annual current inflation rates in G20
•
Reduced supply of safe haven assets
For professional advisers only | www.sandwfunds.com
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Inflation / deflation history
UK Annual Rate of inflation %
Date
Source: Officer and Williamson, Credit Suisse Feb 2012
For professional advisers only | www.sandwfunds.com
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Both an inflation and deflation hedge•
Index-linked government bonds offer most reliable inflation hedge
•
Inflation proofed bonds issued with a floor of par also offer a deflation
hedge
•
Conventional bonds offer most reliable deflation hedge
Real bond and equity returns vs. inflation rates 1900-2011
Rate of return/inflation %
Percentiles of inflation across 2128 country-years
Real bond return Real equity return Inflation rate of at least %
Source: Dimson, Marsh and Staunton; Credit Suisse Feb 2012
For professional advisers only | www.sandwfunds.com
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Source: Shiller, Yale University as at 16.04.2012
Yield gap reversed with equities – heading back to early1950s levels
0
2
4
6
8
10
12
14
16
1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
US Dividend Yield US long run interest rate
US 10-year yield
For professional advisers only | www.sandwfunds.com
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“Risk on”
/ “risk off”
examples
“Risk-on”
currencies protect capital during risk-on phases
Safe havens protect capital during “risk-off”
phases
Australia and Canada Singapore
Sweden Switzerland
Eurozone US and Canada
Norway Norway
For professional advisers only | www.sandwfunds.com
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•
Currencies can add diversification benefits to sterling-based investors
•
Hedging methodology
The Fund has the freedom to hedge the currency risk if appropriate
Opportunity to pick up yield from forward curve anomalies (eg
US$)
High yield currencies with strong fundamentals unlikely to be hedged
(eg
Australian $)
When will we hedge?
For professional advisers only | www.sandwfunds.com
21
Portfolio construction
Instrument Range (percentage of value) Anticipated portfolio
‘Cash Reserve’
(<5yr Gilts/T-bills)
(forms part of the conventional bonds category)
0-10% 5%
Global Government Index-Linked Bonds 30-70% 61%
Global Government Conventional Bonds 20-60% (including ‘Cash Reserve’
above) 39%
Investment Grade Corporate Bonds 0-20% 0%
Average maturity variable 18.1
Average modified duration variable 9.7
% in any one Government Less than or equal to 30%Except UK which may be up to 100%
US –
12.5%UK –
42%
Number of holdings 20-40 27
Note: Index-linked bonds future global inflation rate assumptions; local prevailing rate continues to maturity (except UK bonds: Debt Management Office assumption of 3% to maturity)
For professional advisers only | www.sandwfunds.com
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Anticipated portfolio characteristics:
Anticipated top ten holdings
1 I-L Gilt 0.125% 2029 10.0% 6 Gilt 2.25% 2014 4.0%
2 I-L Gilt 4.125% 2030 10.0% 7 German I-L 0.1% 2023 3.5%
3 I-LGilt
0.625% 2040 10.0% 8 Swedish Gov I-L 0.25% 2022 3.5%
4 US TIP 0.125% 2022 5.0% 9 Australian I-L 1.25% 2022 3.5%
5 US TIP 0.75% 2042 5.0% 10 Australian I-L 2.5% 2030 3.5%
Anticipated effective currency
76.0%
3.5%
7.0%
10.0%
3.5%
Source: Smith & Williamson Investment Management, 17.04.2012
Anticipated underlying currency8.0%
10.0%
3.5%
3.5%
3.5%
15.0%
7.0%
49.5%
SGDAUD
GBP
EURCADSEK
USD
NOK
GBP
CAD
NOK
AUD
SEK
For professional advisers only | www.sandwfunds.com
23
Product features•
Dublin ICVC (UCITS) –
sub-fund of the existing Dublin umbrella company Smith & Williamson Investment Funds Plc
•
Settlement T+4•
Dealing: 5pm each Irish business day; Valuation: 11.59pm each Irish business day•
XD dates:
Interims:
30 June
Final: 31 December
•
Distribution within six weeks of the XD date
•
ISAable
•
Four single priced £
share classes:
A share class: retail (income and accumulation)
B share class: institutional (income and accumulation)
•
Charges A share class:
Initial
N/A
AMC
1% (charged to income)
•
Minimum Investment: Initial: £1,000,
Subsequent: £1,000
•
Charges B share class:
Initial
N/A
AMC
0.65% (charged to income)
•
Minimum Investment: Initial: £250,000, Subsequent: £1,000
•
Launch period 16-25 May 2012
For professional advisers only | www.sandwfunds.com
24
Summary
•
Unusually low interest rates likely to persist
•
Aiming to protect capital in uncertain times
•
Minimising credit risk
•
Aiming to protect against inflation and deflation
•
Focusing on safe haven assets
For professional advisers only | www.sandwfunds.com
25
Robin MarshallFund Adviser
Robin Marshall is a Director of Fixed Income at Smith & Williamson, and advises UK institutional clients on fixed income portfolios and currency exposures. These clients range from local authoritypension funds and insurance companies to absolute return (hedge) funds. Previously Robin spent 18 years atJPMorgan Chase as an economist and strategist in fixed
income and foreign exchange, and became Managing Directorfor Economic and Policy Research. Robin graduated in Economicsfrom Oxford University and also holds an M.Phil
in Economics. Robin is frequently quoted in the international press and isa regular contributor to Bloomberg TV, Bloomberg news and other media outlets.
Ian KennyFund Manager
Ian Kenny joined Smith & Williamson in 1997 as an institutional fund accountant. He Qualified as a Chartered Certified Accountant in 2001 and has since assumed fund Management responsibilities for a variety of Institutional funds. He is a Member of the Chartered Institute for Securities & Investment and a CFA Charterholder.
Smith & Williamson –
Fixed interest team
Chris LynasHead of Fixed InterestChris Lynas has been working in investment management since 1986 and joined Smith & Williamson in 1990. He has had primary responsibility for the Smith & Williamson Fixed Interest Trust since February 1998. Chris is also the team leader for Fixed Interest.
Thomas WellsFund Manager
Thomas joined the firm in September 2007on the Graduate programme. He achieveda First class degree in Financial Serviceswith Economics and is a Member of theChartered Institute for Securities & Investment. He has been working with Chris and Ianas a member of the Fixed Interest team since January 2009.
For professional advisers only | www.sandwfunds.com
26
Contacts
Nick HodgsonDirector, Marketing and SalesTel: 020 7131 4630 Mob: 07720 558636E-mail: [email protected]
Julian PolnikHead of Broker DeskTel: 020 7131 4628E-mail: [email protected]
Dedicated funds website: www.sandwfunds.com
Matthew KempAssociate Director -
SalesTel: 020 7131 4506Mob: 07584 150797E-mail: [email protected]
Andrew GrovesAssociate Director -
SalesTel: 020 7131 4756
Mob: 07917 580592E-mail: [email protected]
Martin OrrinAssociate Director -
SalesTel: 020 7131 4706Mob: 07760 178523E-mail: [email protected]
For professional advisers only | www.sandwfunds.com
27
Key risks•Investment does involve risk. The value of investments can go down as well as up and investors may not receive back the original amount invested.•The Fund will invest in government bonds globally, but substantially in UK government bonds. It will therefore carry a lower degree of credit risk than funds investing in corporate fixed income or equity securities. However, please note that bond funds may not behave like direct investments in the underlying bonds themselves. By investing in bond funds the
certainty of a fixed income for a fixed period with a fixed return of capital are lost.•The Fund will be exposed to credit risk on parties with whom it trades and may also bear the risk of settlement default.•Not all government securities are backed by the full faith and credit of the relevant national government. Some are backed only by the credit of the issuing agency which accordingly subjects the fund to additional credit risk.•When investments are made in overseas securities, movements in exchange rates may have an effect on the value of that investment. The effect may be favourable or unfavourable. •Past performance is not a guide to future performance.•Investment is subject to documentation (Prospectus, Simplified Prospectus and Terms & Conditions), copies of which can be obtained free of charge in English from Smith & Williamson Investment Management Limited, 25 Moorgate, London EC2R 6AY or online www.sandwfunds.com
Important information
For professional advisers only | www.sandwfunds.com
28
DisclaimerFor professional advisers only -
not for use by or distribution to retail investors. This document contains information believed to be reliable but no guarantee, warranty or representation, express or implied, is
given as to their accuracy or completeness. This is neither an offer nor a solicitation to buy or sell any investment referred to in this document. Smith & Williamson Investment Management (SWIM) documents may contain future statements which are based on our current opinions, expectations
and projections. Smith & Williamson Investment Management does not undertake any obligation to update or revise any future statements. Actual results could differ materially from those anticipated. Appropriate advice should be taken before entering into transactions. No responsibility can be accepted for any loss arising from action taken or refrained from based on this publication.
The opinions expressed are those held by SWIM at the time of going to print and are subject to change. This material should not
be considered by the recipient as a recommendation relating to the acquisition or
disposal of investments. This material does not contain sufficient information to support an investment decision and investors should ensure that they obtain all available relevant information before making any
investment.
There can be no assurance that the professionals currently employed by SWIM will continue to be employed by SWIM or that the past performance or success of any such professional serves as an indicator of such professional’s future performance or success.There can be no assurance that the Fund
will achieve its investment objective, the target return or any other objectives. Any target return shown is neither guaranteed nor binding on the Manager.
Any information about specific stocks or investments is given for illustrative purposes. It is considered to be accurate at the time of writing but no warranty of accuracy is given and no liability in respect of any
error or omission is accepted. Any examples of specific stocks
are included solely to illustrate the investment process and strategies which may be utilised by the Fund. These investments are not necessarily representative of future investments that the Fund will make.
The Smith & Williamson Short-Dated Corporate Bond Fund and Global Government Bond Fund are sub-funds of Smith & Williamson Investment Funds PLC, a Dublin domiciled OEIC regulated by the by the Irish
Financial Services Regulatory Authority. The Short-Dated Corporate Bond Fund is a recognised scheme under section 264 of the Financial Services and Markets Act 2000. The rules made under the Act for the protection of private customers (for example, those conferring rights to cancel or withdraw from certain investment agreements) do not apply in connection with an investment in the Fund. In addition, the protections available under the Financial Services Compensation Scheme and the Financial Ombudsman Service may not be available. The Smith & Williamson Global Government Bond Fund is awaiting FSA recognition under section 264 of the Financial Services and Markets Act 2000.
Issued in the UK by Smith & Williamson Investment Management Limited which is authorised and regulated by the Financial Services Authority
(registration number is 131816).
Ref: 277/2012/db
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