agf floating rate income fund - amazon...
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AGF Floating Rate Income FundScott Page, CFACo-Director of Eaton Vance Floating-Rate Loan Group
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• 32-year industry veteran
• Portfolio Manager on AGF Floating Rate Income Fund since inception
• Eaton Vance Management launched the first ever U.S. floating-rate loan in 1989
Scott Page, MBA, CFACo-Director of Floating-Rate Loans, Eaton Vance
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Agenda
• Floating-Rate Loan Primer
• Floating-Rate Loan Market Update
• Why Floating-Rate Loans now?
• Why Select AGF Floating Rate Income Fund
• AGF Floating Rate Income Fund Review
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Floating-Rate Loan Primer
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Floating-Rate Loan Primer
• Corporate debt issued by below-investment-grade borrowers
• Most issuers are significant in size and scale – and many are familiar household names
• Companies undertake loans for recapitalizations, acquisitions and refinancings
• Coupon income from floating-rate loans resets regularly (about every 40-60 days on average) to maintain a fixed spread over a variable base rate, usually LIBOR
• Loans are often referred to as “senior and secured.” They typically have the highest priority of claims in an issuer’s capital structure and are secured by specific collateral
• Other common monikers: bank loans, leveraged loans, senior loans (all are synonymous)
Data provided is for informational use only. Past performance is no guarantee of future results. It is not possible to invest directly in an Index.
See end of report for important additional information.
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Investment Universe ProfileSenior secured lending to significant corporate issuers
• Floating-rate loans represent a well-protected senior layer of issuer capital structure
• Significant junior capital cushion (i.e. equity and high-yield bonds) provides attractive loan-to-value
• Secured by collateral including issuer accounts receivable, inventory, property, plant, equipment and/or stock
3.9x (33% of cap structure)
5.6x (16% of cap structure)
11.3x (51% of cap structure)
Fixed Charge Coverage: 2.1xInterest Coverage: 3.9x
Floating-Rate Loans
High-Yield Bonds
Equity
US$2 B$3,146 Million
$4,764 Million
$1,490 Million
Weighted Average Company Capital Structure:
$5.2B Revenue & $828M EBITDA
$9.4 Billion Enterprise Value
Source: Eaton Vance, 12/31/2014.
For illustrative purposes only. Not meant to represent any Eaton Vance Funds. It is not possible to invest directly in an index.
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Floating-Rate Loan Market Update
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Q4 Supply Growth Eased on Higher Market YieldsSupply expansion about half the speed QoQ
Par amount of Outstanding Loans ($B)
Source: S&P/LCD and S&P/LSTA Leveraged Loan Index, December 31, 2014.
3 months$27
$0B
$100B
$200B
$300B
$400B
$500B
$600B
$700B
$800B
'96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
$682
$832
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CLOs Accounting for Majority of Visible Demand
Source: S&P/LCD, December 31, 2014.
Visible Inflows
• Retail still in reverse (but moderating in early January); Institutional mandates additive
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Borrowing Proposition Remains in Check
• “Outer edge” multiples contained; generationally low interest costs a mitigating factor
Source: S&P/LCD.
Debt & Enterprise Values as EBITDA Multiples Avg. Interest Coverage Ratio of Outstanding Loans
Total Enterprise
Valueshere
Lendinghere
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Default Rates Well Below Long-Term AveragesSound fundamentals have helped limit default scenarios
$0B
$10B
$20B
$30B
$40B
$50B
$60B
$70B
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Amount to Default
Source: S&P/LCD and S&P/LSTA Leveraged Loan Index.
0%
2%
4%
6%
8%
10%
12%
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
Default Rate
Lagging 12-Month Default Rate by Principal Amount
Actual Default
Rate
Amount Recovered On Default (Assumes
70%Recoveries)
Credit Loss Given Default
(Assumes 70%
Recoveries)
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Loan Prices have Recently Rebounded after Soft Technicals in Q4-2014
$90
$92
$94
$96
$98
$100
Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Sep-14 Oct-14 Nov-14 Dec-14 Jan-15 Feb-15
$97.0
Average Prices
Source: S&P/LCD and S&P/LSTA Leveraged Loan Index.
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Spreads Reasonable –Remain well wide of prior-era lows
443
200
250
300
350
400
450
500
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Nominal Spread of Outstanding Loans
Source: S&P/LCD and S&P/LSTA Leveraged Loan Index.
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Spreads Remain Well Wide of 2006/2007 Levels
0
500
1,000
1,500
2,000
'04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
bps
Source: S&P/LCD and S&P/LSTA Leveraged Loan Index.
Data provided is for informational use only. Past performance is no guarantee of future results. It is not possible to invest directly in an Index. See end of report for
important additional information. Default rate is calculated as the amount default over the last twelve months divided by the amount outstanding at the beginning of the
twelve-month period.
Spread to Maturity of Outstanding Loans
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Why Floating-Rate Loans Now
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High Yield per Unit of DurationMay help amplify yield today, while significantly shortening portfolio duration
Source: Morningstar, December 31, 2014.
Floating-Rate Loans vs. Select Asset Classes
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Positive Return Tendencies for 20 Years
• 1%-2% per quarter most common historically; skew has helped drive tendencies positive
Distribution of All Quarterly Total Returns: 1992-Q3-2014
Negative Quarters Positive Quarters
Returns have been positive in 87% of quarters since 1992.
Q1 2008Q3 2008Q4 2008
Source: Zephyr, December 31, 2014.
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Negative Correlation a Hedge for High-Quality Bonds
Source: Morningstar, December 31, 2014.
10-Year Correlation with U.S. Treasuries
• “Anti-bond” characteristics: may help offset core bond positions driven by interest rates
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Easy Monetary Conditions May Persist……but when tightening ultimately comes, loans should benefit
Source: Morningstar, December 31, 2014.
Cumulative Loan Performance During Prior Rising Rate Environments
2/94–2/95
Loans: 10.39%
Bonds: 0.01%
6/99-5/00
Loans: 3.93%
Bonds: 2.11%
6/04-6/06
Loans: 12.66%
Bonds: 6.55%
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The Future: Will Rates Rise, Stay Level, Fall?
Loans vs. Bonds: Hypothetical Returns in Various Rate Scenarios
• Looking ahead, most interest-rate scenarios favour loans (thanks to generationally low rates)
Interest-Rate changes (in basis points)
Source: Eaton Vance, December 31, 2014.
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Thinking about Baseline Forward ReturnsFed guidance is for higher short-term rates
0%
5%
10%
15%
3-Month LIBOR Spread
Source: S&P/LCD, March 31, 2015.
Fed Rate Hike Cycle: 6/04-6/06(17 hikes totaling 425 bps)
What’s Next for Short Rates?
Weighted Average Absolute All-In Rate
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Why AGF Floating Rate Income Fund
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Advantage of Eaton Vance’s ExperienceA pioneer in floating-rate loan investment management
Years Experience Managing Floating-Rate Loans
Eaton Vance
(Since 1989)
Median8.9 Years
0 5 10 15 20 25
Eaton Vance (1989) Competitor Floating-Rate Loan Managers (Institutional & Retail)
• Measurable track record since 1989
• Significant floating-rate loan investment resources and specialization
• Extensive contiguous experience of investment team
• Focus on delivering incremental outperformance with lower volatility than the Index and peers
• Continuity of philosophy, process and team over time
• Systematic risk-weighted portfolio construction underpinned by bottom-up credit research
eVestment Alliance/Morningstar, 12/31/2014. Based on combined eVestment Alliance Floating-Rate Bank Loan Fixed Income universe
and Morningstar Bank Loan category using oldest investment offering for each firm.
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Floating-Rate Loan Strategy AssetsVehicles and assets managed*
Floating-Rate Loan AUM: $40.8 b(by vehicle)
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
$50
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Floating-Rate Loan AUM: $40.8 b(by calendar year)
$40.8b
Institutional($9,867 m)
Structured Products($2,497 m)
Closed End Fundsand Sleeves($4,026 m)
Sub-Advised($2,813 m)
Mutual Funds($21,611 m)
Eaton Vance Management (and affiliates) as of 12/31/2014
*The above AUM data includes those vehicles sponsored by Eaton Vance which generally only have a portion of their total investments allocated
to the Floating-Rate sector.
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Extensive and Experienced Investment Team
Team Leadership
Scott Page, CFA33 Years Experience (25 with Eaton Vance)
Craig Russ29 Years Experience (18 with Eaton Vance)
John Redding30 Years Experience (17 with Eaton Vance)
Andrew Sveen, CFA20 Years Experience (16 with Eaton Vance)
Credit Research
Ralph Hinckley, CFABroadcast/Cable TV, Telecom, Publishing17 Years Experience (11 with Eaton Vance)
Catherine McDermottAuto, Gaming, Packaging26 Years Experience (14 with Eaton Vance)
Peter Campo, CFABuilding Products, Insurance, Oil & Gas19 Years Experience (11 with Eaton Vance)
Michael Turgel, CFAFood, Metals, Utilities12 Years Experience (8 with Eaton Vance)
Jeff Hesselbein, CFAHealthcare, Pharmaceuticals, Theme Parks18 Years Experience (15 with Eaton Vance)
Heath Christensen, CFAAerospace/Defense, Software, Travel11 Years Experience (11 with Eaton Vance)
Daniel McElaney, CFABusiness Equip/Services, Chemicals/Plastics, Consumer Products11 Years Experience (10 with Eaton Vance)
Cyril Legrand4 Years Experience (4 with Eaton Vance)
Brad Richards3 Years Experience (3 with Eaton Vance)
Brian KeenanBusiness Equip/Services, Healthcare, Telecom5 Years Experience (5 with Eaton Vance)
William Holt, CFACasinos, Financials, Restaurants, Technology, Semiconductors13 Years Experience (10 with Eaton Vance)
Elizabeth ChouRetailers (excl Food & Drug)5 Years Experience (5 with Eaton Vance)
Samuel Tripp1 Year Experience (1with Eaton Vance
Audrey S. Grant1 Year Experience (1with Eaton Vance)
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Extensive and Experienced Capabilities
Trading Recovery Management / Credit Advisory
Andrew Sveen, CFA20 Years Experience (16 with Eaton Vance)
Jake Lemle7 Years Experience (7 with Eaton Vance)
David Aloise40 Years Experience (15 with Eaton Vance)
David McKown57 Years Experience (15 with Eaton Vance)
Structured Products Operations & Compliance Product & Portfolio Strategy
Michael Kinahan, CFA28 Years Experience (17 with Eaton Vance)
Additional Staff:2 structured product professionals
Michael Botthof23 Years Experience (17 with Eaton Vance)
Additional Staff:7 operations/compliance professionals
Christopher Remington16 Years Experience (6 with Eaton Vance)
Howard Tiffen43 Years Experience (2 with Eaton Vance)
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Investment Process
1500 Loans
Investable Universe
– Investment team identifies most appropriate opportunity set
– S&P/LSTA Leveraged Loan Index & select non-U.S. loans
– Apply criteria (examples): • Minimum deal size• Maximum leverage• Qualitative assessments
450-550 Loans
Select Universe Target Portfolio
1000 Loans
– Select universe analyzed throughfundamental credit research process
– Time-tested bottom-up credit research – Relative risk rankings assigned by analysts
– Systematic risk-weighted construction driven by relative risk rankings
– Focus on diversification– Position sizing optimized for optimal
risk/return profile
Relative Value
Analysis
Structural Analysis
Quantitative Analysis
Qualitative Analysis
Source: Eaton Vance. Illustrative purposes only. Not meant to represent any Eaton Vance Funds.
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AGF Floating Rate Income Fund Review
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AGF Floating Rate Income Fund –Portfolio StatisticsAsset Distribution Assets by Country Other Asset Distributions
Bank Loans 84.3% U.S. 87.92% Covenant Lite 65.16%
Corporate Bonds 12.6% Australia 0.93% 2nd Lien Bank Loans 4.45%
Equity 0.1% Bermuda 0.23%
Net Cash & Equivalents 3.0% Canada 3.47% Portfolio Credit Quality % of MV
Total 100.0% Cayman Islands 0.32% Baa 0.7%
France 0.63% Ba 33.0%
Portfolio Statistics (Loan Portfolio) Germany 0.86% B 59.0%
Total Net Assets: $284.9mm Luxembourg 3.14% Caa 5.5%
Number of Loans: 322 Netherlands 2.50% Ca 0.1%
Average loan size: $0.746mm Total Foreign 12.08% Total 100.0%
Average loan size of TNA: 0.26% Total 100.00%
Total loans (mkt value): $240.2mm Weighted Average Credit Rating B1
Weighted average price (loans) 97.75% Top Ten Industries
Weighted average years to maturity 4.87 Business Equipment & Services 9.58% Top Ten Holdings
Weighted average days to reset 62 Health Care 9.52% Transdigm, Inc. 1.64%
Loan duration 0.16986 Electronics/Electrical 8.06% Asurion LLC 1.42%
Weighted average spread 3.76% Oil & Gas 6.86% Ineos US Finance LLC 1.25%
Weighted average LIBOR 1.00% Chemicals & Plastics 6.74% Syniverse Holdings, Inc. 1.14%
Weighted average all-in rate 4.76% Retailers (except food & drug) 5.91% Dell Inc. 1.09%
YTM 5.34% Financial Intermediaries 4.71% 1011778 B.C. Unlimited Liability Company 1.03%
Insurance 3.43% Guggenheim Partners, LLC 0.86%
Portfolio Statistics (Bond Portfolio) Industrial Equipment 3.40% AmWINS Group, LLC 0.82%
Number of Bonds: 73 Food Service 3.36% Apex Tool Group, LLC 0.82%
Total bonds (mkt value): $35.7mm Total 61.56% Kronos Incorporated 0.82%
Weighted average price (bonds) 101.63% Total 10.90%
Weighted average years to maturity 5.81 Portfolio Stats (Total Portfolio)
Bond duration 3.18 Fund duration 0.55
Weighted average g coupon 7.32% Fund weighted average years to maturity 4.83
YTM 6.78% Net Yield 3.59%
YTW 6.03% Source: Eaton Vance, March 31, 2015.
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AGF Floating Rate Income Fund –Performance
Annualized Return USD As of March 31, 2015
3 mo. 1-yr PSD*
AGF Floating Rate Income Fund (Gross) 2.2% 3.1% 5.1%
AGF Floating Rate Income Fund (Net) 1.8% 1.2% 3.1%
S&P/LSTA Leveraged Loan Index (USD) 2.1% 2.5% 4.8%
Source: AGF Investment Operations, as of March 31, 2015. USD.
*Performance Start Date of May 1, 2012.
Calendar Return, USD As of March 31, 2015
2014 2013
AGF Floating Rate Income Fund (Gross) 2.5% 5.9%
AGF Floating Rate Income Fund (Net) 0.6% 3.9%
S&P/LSTA Leveraged Loan Index (USD) 1.6% 5.3%
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Why AGF Floating Rate Income Fund, Why Now
• Eaton Vance is the largest floating-rate manager in North America with experience in this asset class dating back to 1989, substantially longer than any competing product in Canada.
• Floating-rate loans typically perform well in rising interest rate environments because of their short duration.
• Floating-rate loans have low to negative correlations with other typical fixed-income and equity asset classes
• Senior and secured: floating-rate loans have the highest priority in a company’s capital structure and are generally backed by hard assets in the form of collateral
• Short term: loans have an average life of three years and their coupons reset approximately every 55 days, resulting in little to no duration risk associated with these securities.
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Available Marketing Support
For you and your clients
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Disclaimers
Eaton Vance Management (Boston, Massachusetts), Portfolio Manager of AGF Floating Rate Income Fund, is an International Adviser relying on anexemption from Canadian registration requirements under National Instrument 31-103.
All information is in Canadian dollars. The indicated rates of return are the historical annual compounded total return including changes in unit valueand reinvestment of all dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by anysecurity holder that would have reduced returns. Commissions, trailing commissions, management fees and expenses all may be associated withmutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and pastperformance may not be repeated.
The payment of distributions should not be confused with a fund’s performance, rate of return or yield. If distributions paid by the fund are greaterthan the performance of the fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a fund, and incomeand dividends earned by a fund are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of anyreturns of capital. If your adjusted cost base falls below zero, you will have to pay capital gains tax on the amount below zero.
Past performance is not necessarily a guide to future performance. The value of investments and the income from them can fall as well as rise.Investments denominated in foreign currencies are subject to fluctuations in exchange rates, which may have an adverse affect on the value of theinvestments, sale proceeds, and on dividend or interest income. Investors may not necessarily recoup the full value of their original investment.Investors should be aware that forward looking statements and forecasts may not be realised.
The commentaries contained herein are provided as a general source of information based on information available as of March 31, 2015 andshould not be considered as personal investment advice or an offer or solicitation to buy and / or sell securities. Every effort has been made toensure accuracy in these commentaries at the time of publication, however accuracy cannot be guaranteed. Market conditions may change and themanager accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained herein.
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DISCLAIMER CONTINUED ON FOLLOWING PAGE
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Disclaimers
References to specific securities are presented to illustrate the application of our investment philosophy only and are not to be consideredrecommendations by AGF Investments Inc. or Eaton Vance. The specific securities identified and described in this presentation do not represent allof the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were orwill be profitable.
The information contained herein was provided by AGF Investment Operations and intends to provide you with information related to the AGFFloating Rate Income Fund at a point in time. It is not intended to be investment advice applicable to any specific circumstance and should not beconstrued as investment advice. Market conditions may change impacting the composition of a portfolio. AGF Investments Inc. and Eaton VanceManagement assume no responsibility for any investment decisions made based on the information provided herein.
Publication date: April 20, 2015
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