emd citywire france oct 13 final

Ignis Absolute Return Emerging Market Debt Fund

October 2013

This presentation is intended for professional clients and investment professionals only and should not be relied upon by retail investors.

1

Emerging market debt has come of age with regard to size of market and breadth of instruments

An absolute return approach can take full advantage of this growing opportunity set

Uncertain return potential for long-only investment strategies as EM investors react to US tapering fears

Strategies that control risk and focus on alpha generation can shield investors from volatility

Absolute return emerging market debt strategy

October 13

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Philosophy:

Emerging market debt offers a relatively underplayed opportunity set for absolute return strategies

Analysis of short-term market dynamics, as well as fundamentals, captures the best alpha ideas

Designed to deliver:

Strong risk-adjusted returns in all market conditions by capturing non-correlated alpha

Carefully controlled volatility

Low correlation with traditional asset classes


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Fund details subject to regulatory approval.

0%

5%

10%

15%

20%

Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13

Volatility** Annualised standard deviation - Emerging Market Debt Absolute Return Fund (not publicly marketed)

Annualised standard deviation - JPM GBI-EM Global Diversified $ Unhedged Index**

90%

95%

100%

105%

110%

115%


Performance

Emerging Market Debt Absolute Return Fund (not publicly marketed)

JPM GBI-EM Global Diversified $ Unhedged Index**

Managing risk and return

October 13

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-3.7%

2.3%

5.3%

13.3%

All data for illustrative purposes only. Performance shown is based on the Bothwell Emerging Market Debt Absolute Return Fund, a UK authorised UCITS IV fund invested in by our Life Company Client not publicly marketed to external investors. The new fund will be a Luxembourg based UCITS IV fund based on this strategy (subject to regulatory approval). Source: Ignis based on data sourced from HSBC, information since 31/01/2012 to 30/08/2013, based on HSBC Unit Trust Pricing, adjusted to account for 0.65% Annual Management Charge and 10% Performance Fee on all positive growth (no hurdle). All data in GBP. *Source: Bloomberg from 31/01/2012 to 30/08/2013 **Source: Ignis, ex post rolling 60 day volatility from 31/01/2012 to 30/08/2013 Past performance is not a guide to future performance. The absolute return nature of the strategy means it is targeting positive returns, but this is not a guarantee and investors may not get back the original capital invested.

Beta strategies can force you to take unintended exposure

Absolute return allows individual exposures to be isolated

Improves risk-adjusted return potential

EMD absolute return: precision investing

October 13

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Type External Local

Markets

EM Sovereign External

Debt

EM Sovereign Local Debt

EM Local Inflation-

Linked

Currency USD Local Local

Exp

osu

res

Sov Sprd ✓

US Rates ✓

EM Rates ✓ ✓

EM Real ✓

EM FX ✓ ✓

Investing in:

A diverse range of EMD markets:

- Local debt and rates

- External debt and rates

- FX

A broad range of instruments

- Interest Rate Swaps

- CDS

- Bonds

- FX

Ignis Absolute Return Emerging Market Debt Fund Broad investment universe


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Opportunity set classified into four distinct sources of alpha

Fundamental and quantitative analysis applied across each area

Generating stand-alone ideas or feeding through to populate other layers

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Investment process: highly engineered approach

Instrument

Micro

Country

Asset class

Mo

re q

uan

titative

Mo

re fun

dam

ental

Team manage €498m EM debt assets

Disciplined, team-based approach

Individual investment perspectives

Managing external debt since 1997, local debt since 2003, EM derivatives since 2001

Ignis emerging market debt team: Diversified skill set

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Role Years’

experience Years at

Ignis Investment perspective

Background

Dan Beharall Head of EM Fixed Income

18 2 Fundamental Henderson (AMP), Bankers Trust Intl

Sailesh Lad Deputy portfolio manager

17 1 Market Henderson, Bluebay, Moore Capital, Credit Suisse

Mikhail Volodchenko Market analyst 5 5 Quantitative Ignis

Source: Ignis at 31/08/2013

Fundamental

EM growth and inflation seem to be bottoming out

US tapering talk pushed UST yields to 12m high

Market

Heavily invested EM market following huge inflows

Limited available carry resulted in higher leverage from hedge funds

Momentum funds had become net long

Quantitative

Spread to UST returned to tighter end of range

Term premium less than in G7 by widest margin over 3 year range

Outcome

Position: long local markets 2012, neutral 2013

Trade example: cutting long to EM local

Source: Ignis, Bloomberg at 23/08/2013 9


Asset class

October 13

-

1

2

3

4

5

6

7

8-120

-100

-80

-60

-40

-20

-

20

40

Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13

%

No

rmal

ised

mar

ket

leve

ls

Risk Asset Performance

S&P 500 US Treasury 10yr YieldJPM EMBI GD Hard Currency Bond Index Spread Yield Difference JPM GBI-EM Local Index vs 5yr UST

-1.2

-1.0

-0.8

-0.6

-0.4

-0.2

-

0.2

0.4

Jun 07 Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13

%

EM Term Premium vs G5

-3-2-1

- 1 2 3 4 5 6 7 8 9

Dec 07 Jun 08 Dec 08 Jun 09 Dec 09 Jun 10 Dec 10 Jun 11 Dec 11 Jun 12 Dec 12 Jun 13

%

EM Inflation and GDP Growth Inflation

GDP Growth

Fundamental

Expectation that neither central bank likely to act in near term

Fed-taper jitters meant all assets exhibited volatility

Market

Anecdotal evidence that Malaysian pension funds would underwrite the market

Quantitative

Two year rates had almost identical beta

Analysis identified the relative movement as mostly ‘noise’

Outcome

Position: long Malaysian Ringgit 2y Interest Rate Swap versus Thailand Baht 2y Interest Rate Swap

Trade example: relative value Malaysia versus Thailand Interest Rate Swap

Source: Bloomberg at 27/08/2013 10


Country

October 13

Exit point

Entry point

60

65

70

75

80

85

90

May 13 Jun 13 Jul 13 Aug 13

Malaysian Ringgit 2 year vs Thailand Baht 2 year Interest Rate Swap

Fundamental

President Chavez died in March 2013, elections called for April

Public sentiment favoured a PSUV candidate and further policy uncertainty

Market

Venezuela remained a crowded position – expected investors would seek hedge/exit

Quantitative

An inverted spread curve allowed us to take bearish view via CDS, with long position in shorter-dated bond at higher spread

Outcome

Position: long 3y bond, short via 5y CDS

Trade example: relative value Long Venezuelan bond versus CDS


Ignis Absolute Return Emerging Market Debt Fund October 13

Exit point

Entry point

-150

-100

-50

-

50

100

150

Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13

Venezuela 5yr CDS basis Instrument

Fundamental

EM sell-off affecting 5-10y segment of yield curves

Polish zloty did not weaken aggressively during sell-off

Central bank reiterated dovish sentiment, cutting rates in June and July

Market

Polish bonds – one of the most heavily owned EM assets

Quantitative

Polish 10y area offered poor carry and limited upside

Polish curve too flat for end stages of easing cycle

Outcome

Position: long 2y Interest Rate Swap, short 10y Interest Rate Swap

Trade example: slope trade Poland Interest Rate Swap steepener



Micro

October 13

Entered

60

70

80

90

100

110

120

May 13 Jun 13 Jul 13 Aug 13

Polish Zloty 2y Interest Rate Swap vs 10y Interest Rate Swap

Still in the trade

Calibrated trade sizing methodology

Alpha target 400bps

Assumed Information Ratio 0.75

Average number of positions 25

Expected monthly position volatility 25bps

Expected position correlation 0.4

Position size as duration contribution 0.35

Disciplined risk budgeting

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Expected number of positions and inter-correlation

Expected Sharpe

Performance objective

Individual position

size


Tactical risk management

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Aggregated portfolio risk

Country risk

Position risk

• Total VaR

• Total Exposure

• Rate sensitivity

• FX exposure

• Correlation

• Stop loss/review

Risk measurement and monitoring undertaken independently

0

5

10

15

20

25

30

-1.6% -1.4% -1.2% -1.0% -0.8% -0.6% -0.4% -0.2% 0.0% 0.2% 0.4% 0.6% 0.8% 1.0% 1.2% 1.4% 1.6%

Freq

uen

cy

Histogram showing distribution of weekly returns*

Normal distribution at current volatility

Positive skew of returns

1.6% 1.4% 1.2% 1.0% 0.8% 0.6% 0.4% 0.2% 0.0% -0.2% -0.4% -0.6% -1.0% -0.8% -1.2% -1.4% -1.6%

Performance (since launch): 5.30%

Annualised performance (since launch): 3.35%

Average weekly return: 0.06%*

Annualised standard deviation: 2.42%

Information ratio: 1.20

October 13

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All data for illustrative purposes only. Performance shown is based on the Bothwell Emerging Market Debt Absolute Return Fund, a UK authorised UCITS IV fund invested in by our Life Company Client not publicly marketed to external investors. The new fund will be a Luxembourg based UCITS IV fund based on this strategy (subject to regulatory approval). Source: Ignis based on data sourced from HSBC, information since 31/01/2012 to 30/08/2013, based on HSBC Unit Trust Pricing, adjusted to account for 0.65% Annual Management Charge and 10% Performance Fee on all positive growth (no hurdle). All data in GBP.*Based on weekly data from 31/01/2012 to 30/08/2013. Past performance is not a guide to future performance. The absolute return nature of the strategy means it is targeting positive returns, but this is not a guarantee and investors may not get back the original capital invested.

Emerging Market Debt

Absolute Return Fund

MSCI World Index

Citigroup World Gov't Bond Index

iBoxx Non Sovereign EUR

Barclays Capital Global

High Yield

JPM Emerging Market Bond

Index USD

JPM GBI-EM Global

Diversified $ Unhedged

Emerging Market Debt Absolute Return Fund

1.00

MSCI World Index -0.09 1.00

Citigroup World Gov't Bond Index

-0.12 -0.11 1.00

iBoxx Non Sovereign EUR -0.07 -0.07 0.71 1.00

Barclays Capital Global High Yield

-0.02 0.70 0.11 0.17 1.00

JPM Emerging Market Bond Index USD

-0.10 0.41 0.47 0.46 0.65 1.00

JPM GBI-EM Global Diversified $ Unhedged

-0.07 0.66 0.18 0.12 0.74 0.61 1.00

Low correlation to other risk assets

October 13

16


Correlation

1.00

0.80

0.60

0.40

0.20

0.00

-0.20

-0.40

-0.60

-0.80

-1.00

All data for illustrative purposes only. Performance shown is based on the Bothwell Emerging Market Debt Absolute Return Fund, a UK authorised UCITS IV fund invested in by our Life Company Client not publicly marketed to external investors. The new fund will be a Luxembourg based UCITS IV fund based on this strategy (subject to regulatory approval). Source: Ignis based on data sourced from HSBC, information since 31/01/2012 to 30/08/2013, based on HSBC Unit Trust Pricing, adjusted to account for 0.65% Annual Management Charge and 10% Performance Fee on all positive growth (no hurdle). All data in GBP. Source: Bloomberg for all market index data (local currency shown) from 01/02/2012 to 30/08/2013. Past performance is not a guide to future performance. The absolute return nature of the strategy means it is targeting positive returns, but this is not a guarantee and investors may not get back the original capital invested.

95%

100%

105%

110%

115%


Performance

Emerging Market Debt Absolute Return Fund (not publicly marketed)

JPM GBI-EM Global Diversified $ Unhedged Index**

Delivering performance

October 13

17


All data for illustrative purposes only. Performance shown is based on the Bothwell Emerging Market Debt Absolute Return Fund, a UK authorised UCITS IV fund invested in by our Life Company Client not publicly marketed to external investors. The new fund will be a Luxembourg based UCITS IV fund based on this strategy (subject to regulatory approval). Source: Ignis based on data sourced from HSBC, information since 31/01/2012 to 30/08/2013, based on HSBC Unit Trust Pricing, adjusted to account for 0.65% Annual Management Charge and 10% Performance Fee on all positive growth (no hurdle). All data in GBP. *Source: Bloomberg from 31/01/2012 to 30/08/2013 Past performance is not a guide to future performance. The absolute return nature of the strategy means it is targeting positive returns, but this is not a guarantee and investors may not get back the original capital invested.

-3.7%

5.3%

Emerging market debt has come of age

An absolute return approach can take full advantage

Investors should seek managers of risk as well as return

Conclusion

October 13

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Disclosure

This material is prepared and presented for informational purposes to provide an introduction to the business activities of Ignis Investment Services Limited. It relates to the discretionary investment management services of Ignis Investment Services Limited, it does not constitute an offer to sell or a solicitation of any offer to invest in Ignis Investment Services Limited or any funds managed by Ignis Investment Services Limited. It is provided to the named recipient only and may not be passed to any other person. The views expressed do not constitute investment advice.

This material does not form any part of any contract for the sale or purchase of any investment.

The Ignis Absolute Return Emerging Market Debt Fund is still subject to regulatory approval therefore all information in this presentation is subject to change.

Past performance is not a guide to future performance. The absolute return nature of the strategy means it is targeting positive returns, but this is not a guarantee and investors may not get back the original capital invested.

Performance shown in this presentation is based on the Bothwell Emerging Market Debt Absolute Return Fund, a UK authorised UCITS. The new Fund will be a sub fund of Luxembourg SICAV based on this strategy (subject to CSSF approval). Although the investment strategy of the new Fund will be based on the strategy of the UK authorised UCITS, it may not replicate all investments on a like for like basis from launch.

This communication has promotional purposes and is intended as a summary. It does not constitute an invitation, offer, solicitation or recommendation to purchase or sell shares in the Strategy. It is only intended for distribution to Investment Professionals. 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. The views expressed do not constitute investment advice. This document does not form any part of any contract for the sale or purchase of any investment.

This document has been issued by Ignis Investment Services Limited registered in Scotland Number SC101825. Registered Office: 50 Bothwell Street, Glasgow G2 6HR. Authorised and regulated by the Financial Conduct Authority.


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October 13

emd citywire france oct 13 final

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