A new tool for a rising rate environment - M&G Global Floating Rate High Yield Fund James Tomlins, Fund Manager

Transcription

1 A new tool for a rising rate environment - M&G Global Floating Rate High Yield Fund James Tomlins, Fund Manager October 2015

2 A solution for taking advantage of rising interest rates M&G Global Floating Rate High Yield Fund Inception: September 2014 Fund manager: Deputy manager: Fund size: Sector: Share classes*: James Tomlins (since inception) Stefan Isaacs (since inception) 732.0m Morningstar Global High Yield Bond USD EUR hedged GBP hedged CHF hedged SGD hedged Source: M&G, 30 September *Share classes may not be registered for sale in all regions

3 Total return (11/09/2014 = 100) Performance since launch M&G Global Floating Rate High Yield Fund M&G Global Floating Rate High Yield Fund BoA ML Global Floating Rate High Yield (EUR Hedged) Index Source: Morningstar Inc., Pan European database, 30 September 2015, euro A-H share class, gross income reinvested, price to price

4 James Tomlins Biography Joined M&G in 2011 and was appointed fund manager of the M&G European High Yield Bond Fund. He was also appointed co-manager on the M&G Global High Yield Bond Fund in January James has also managed the M&G Global Floating Rate High Yield Fund since its launch in September 2014 Specialist in high yield credit with more than 10 years experience in this sector. James was previously an analyst and then a fund manager at Cazenove Capital Management. Before Cazenove, he was at KBC Alternative Investment Management and in the three years prior to that worked at Merrill Lynch Investment Managers He holds an MA in history and PgDip in economics from the University of Cambridge and is a CFA charterholder

5 Agenda Views on the global high yield market Focus on high yield floating rate bonds High yield solutions for different market expectations

6 Total return (rebased to 100) Comparing fixed income asset classes Performance of global IG, global HY and global HY FRN Volatility caused by taper tantrum US HY sell-off as oil prices plunge, then rallies harder Government bond sell-off in Q Global HY FRN Global HY Global IG High yield FRN has delivered lower volatility while generating income Source: M&G, Bloomberg, BofA Merrill Lynch indices, 30 September Rebased to 100 at 31 December 2012

7 Valuations US and European high yield market yields 14% 12% 10% 8% 8.3% 6% 5.7% 4% 2% Source: M&G, Bloomberg, 30 September 2015 USD high yield, non financials - yield to worst Euro high yield, non financials (constrained) - yield to worst US high yield looks better value than Europe, but beware the impact of oil

8 Sector credit spread (bps) US HY credit spread US high yield sector spreads Sector selection remains key Spreads trading wider Average credit spread Portfolio weightings versus neutral position Media (overweight) Telecommunications (overweight) Capital goods (overweight) Real estate (underweight) Spreads trading tighter Credit spreads in energy and metals & mining are still at the mercy of commodity prices Source: M&G, BofA Merrill Lynch indices, 30 September 2015

9 Historic high yield default rates by region LTM issuer default rate (%) Issuer default rates by region US HY EU HY EM HY current global HY default rate Source: M&G, BofA Merrill Lynch Global Research, 31. August 2015

10 US high yield: sector outlook Sector distress ratio: sector % trading at distressed levels Energy Transportation Retail Materials Consumer Products Media Technology Capital Goods Financials Hotels & Leisure Gaming Food Utilities Automotive Real Estate Health Care % 10% 20% 30% 40% 50% Source: M&G, Bloomberg, Bank of America Merrill Lynch indices, 30 September 2015

11 M&G Global High Yield Bond Fund Fund positioning By region By sector By financial tier 35% 17.2% 27.1% US 30% Underweights Overweights Core Europe & Nordics UK 25% 20% 50.9% Senior secured Senior unsecured Junior 15% By rating Periphery 10% NA/NR CCC & below EM 5% 0% 0% 20% 40% 60% B BB BBB Neutral position Fund A & above 0% 30% 60% 90% Source: M&G, 30 September 2015

12 Agenda Views on the global high yield market Focus on high yield floating rate bonds High yield solutions for different market expectations

13 Central bank base rates Base rates at all time lows 7% 6% 5% 4% 3% Future expectations 2% 1% 0% -1% US UK Europe Source: M&G, Bloomberg, forward curves as of 30 September 2015 (expectations based on synthetic forward rates in US, UK and Germany); quotes as of July 2015

14 What are floating rate high yield bonds? Definition FRNs are debt instruments with a variable interest rate Coupon is made up of a variable component (resetting every three months) plus a fixed spread minimal interest rate duration FRNs issued by high yield issuers will pay a higher credit spread

15 Investment universe Global high yield FRN index (data by market weight) Currency distribution Financial tier USD 32.5% Mainly EUR as US firms can use loans Junior 20.5% Senior secured 50.8% GBP 7.9% EUR 61.4% Senior unsec. 28.7% Geographical distribution EM 11.5% UK 15.1% Euro periphery 24.0% US 18.6% Euro core 32.3% M&G credit analysis team covers 97% of the global HY FRN market Source: M&G, Bloomberg, Bank of America Merrill Lynch indices, 30 September 2015 (HFLT) Sector Automotive (0.9%) Banking (28.8%) Basic industry (12.6%) Capital goods (5.4%) Consumer goods (2.0%) Energy (14.1%) Financial services (3.1%) Healthcare (6.1%) Insurance (1.6%) Leisure (1.8%) Media (1.5%) Retail (8.3%) Services (5.9%) Telecommunications (7.9%) Utility (1.9%)

16 Investment universe Global high yield FRN index together with CDS (data by number of issuers) Currency distribution Investable universe Region Issuers USD 43.4% EUR 52.4% Europe 75 itraxx Xover Index US 100 CDX NA HY Index Global HY FRN 113 Total adding CDS 288 Bonds in HY FRN Index GBP 4.2% Geographical distribution Global HY fixed rate - other Sector 3,667 Grand total 3,955 Bonds in HY fixed Index EM 3.5% UK 14.0% US 40.6% Issuance by industrials is increasing Utilities 2.1% Financials 20.5% Europe 42.0% Industrials 77.4% Source: M&G, Bloomberg, Bank of America Merrill Lynch, 30 September 2015 (HFLT and HW00)

17 Price (EUR) Salt, formally Orange (Switzerland) Secured bond prices since issue date % Euribor +375bps floating rate note bond* 3.875% fixed rate bond ** The floating rate bond has broadly been immune to the move in the bund market Source: M&G, Bloomberg, 31 August *MATTER (Salt) Float 05/01/2022 **MATTER (Salt) 3.875% 05/01/2022

18 Price (Rebased to 100 as at 11 August 2014) Stock selection in action Smurfit Kappa vs Wind vs Quicksilver Resources Smurfit Kappa (SKGID 0 10/15/2020) Wind (WINDIM 0 07/15/2020) Quicksilver Resources (KWK 0 06/21/2019) Source: M&G, Bloomberg, 30 September 2015

19 Agenda Views on the global high yield market Focus on high yield floating rate bonds High yield solutions for different market expectations

20 Fund positioning M&G Global Floating Rate High Yield Fund Asset allocation YTM (gross of fees): 5.2% 7.2% 4.3% 11.8% Spread duration: Duration: 3.0 years 0.1 years Top 10 holdings net of CDS collateral 76.7% Government bonds + cash CDS Physical FRNs Interest rate swaps Ticker 1 CDX NA HY 9.39% 2 Telenet 3.68% 3 Wind Acquisition Finance 3.61% 4 Ardagh Packaging 3.54% 5 Iglo Foods 3.54% 6 Tenet Healthcare 3.53% 7 Matterhorn 3.52% 8 New Look 3.15% 9 Verisure 2.94% 10 Stonegate 2.77% Source: M&G, 30 September 2015

21 Fund positioning M&G Global Floating Rate High Yield Fund By region By sector By financial tier 35% 19.2% 2.5% US Core Europe & Nordics UK 30% 25% 20% 15% Underweights Overweights 71.6% Senior secured Senior unsecured Junior By rating Periphery 10% 5% EM 0% 0% 10% 20% 30% 40% Neutral position Fund NA/NR CCC & below B BB BBB A & above 0% 30% 60% 90% Source: M&G, 30 September 2015

22 Conclusions High yield spreads now more attractive Sector positioning key Energy/Commodities High yield floating rate bonds are a possible tool for the next stage of monetary policy cycle Source: M&G, October 2015

23 The fund may invest more than 35% in securities issued by any one or more of the governments listed in the fund prospectus. Such exposure may be combined with the use of derivatives in pursuit of the fund objective. It is currently envisaged that the fund s exposure to such securities may exceed 35% in the governments of Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Italy, Japan, Netherlands, Singapore, Sweden, Switzerland, UK, USA although these may vary subject only to those listed in the prospectus. The value of investments will fluctuate, which will cause fund prices to fall as well as rise and investors may not get back the original amount invested. For Investment Professionals and Institutional Investors only. Not for onward distribution. No other persons should rely on any information contained within. For Switzerland: Distribution of this document in or from Switzerland is not permissible with the exception of the distribution to Qualified Investors according to the Swiss Collective Investment Schemes Act, the Swiss Collective Investment Schemes Ordinance and the respective Circular issued by the Swiss supervisory authority ("Qualified Investors"). Supplied for the use by the initial recipient (provided it is a Qualified Investor) only. In Spain the M&G Investment Funds are registered for public distribution under Art. 15 of Act 35/2003 on Collective Investment Schemes as follows: M&G Investment Funds (1) reg. no 390, M&G Investment Funds (2) reg. no 601, M&G Investment Funds (3) reg. no 391, M&G Investment Funds (5) reg. no 972, M&G Investment Funds (7) reg. no 541, M&G Investment Funds (8) reg. no 1100, M&G Investment Funds (9) reg. no 930, Investment Funds (14), reg. no 1243, M&G Global Dividend Fund reg. no 713 M&G Dynamic Allocation Fund reg. no 843, M&G Global Macro Bond Fund reg. no 1056 and M&G Optimal Income Fund reg. no 522. The collective investment schemes referred to in this document (the "Schemes") are open-ended investment companies with variable capital, incorporated in England and Wales. In the Netherlands, all funds referred to are registered with the Dutch regulator, the AFM. This information is not an offer or solicitation of an offer for the purchase of investment shares in one of the Funds referred to herein. Purchases of a Fund should be based on the current Prospectus. The Instrument of Incorporation, Prospectus, Key Investor Information Document, annual or interim Investment Report and Financial Statements, are available free of charge, in paper form, from the ACD: M&G Securities Limited, Laurence Pountney Hill, London, EC4R 0HH, GB, or one of the following: M&G International Investments Limited, German branch, mainbuilding, Taunusanlage 19, Frankfurt am Main, the German paying agent J.P. Morgan AG, Junghofstraße 14, D Frankfurt am Main, the Austrian paying agent, Raiffeisen Bank International A.G., Am Stadtpark 9, A-1030 Wien, the Luxembourg paying agent, J.P. Morgan Bank Luxembourg S.A., European Bank & Business Center, 6 c route de Treves, 2633 Senningerberg, Luxembourg, the Danish paying agent, Nordea Bank Danmark A/S Issuer Services, Securities Services, Hermes Hus, Helgeshøj Allé 33, Postbox 850, DK-0900, Copenhagen C, Denmark, Allfunds Bank, Calle Estafeta, No 6 Complejo Plaza de la Fuente, La Moraleja, 28109, Alcobendas, Madrid, M&G International Investments Limited, the French branch, or from the French centralising agent of the Fund: RBC Dexia Investors Services Bank France. For Switzerland: Please refer to by M&G International Investments Switzerland AG, Talstrasse 66, 8001 Zurich, for Sweden, from the paying agent, Skandinaviska Enskilda Banken AB (publ), Sergels Torg 2, Stockholm, Sweden. For Italy, they can also be obtained on the website: For Germany and Austria, copies of the Instrument of Incorporation, annual or interim Investment Report, Financial Statements and Prospectus are available in English (a German Prospectus will become available during 2015) and the Key Investor Information Document/s is available in German. Before subscribing you should read the Prospectus, which includes investment risks relating to these funds. The information contained herein is not a substitute for independent advice. This financial promotion is issued by M&G International Investments Ltd and M&G Securities Limited. In Switzerland it is created by M&G Securities Limited. Both are authorised and regulated by the Financial Conduct Authority in the UK and have their registered offices at Laurence Pountney Hill, London EC4R 0HH. Registered in England No M&G International Investments Ltd is registered in England, No and has a branch located in France, 6 rue Lamennais 34, Paris 75008, registered on the Trade Register of Paris, No and is also registered with the CNMV in Spain In Switzerland, the promotion is published by M&G International Investments Switzerland AG, Talstrasse 66, 8001 Zurich, authorised and regulated by the Swiss Federal Financial Market Supervisory Authority. The Portuguese Securities Market Commission (Comissão do Mercado de Valores Mobiliários, the CMVM ) has received a passporting notification under Directive 2009/65/EC of the European Parliament and of the Council and the Commission Regulation (EU) 584/2010 enabling the fund to be distributed to the public in Portugal. M&G International Limited is duly passported into Portugal to provide certain investment services in such jurisdiction on a cross-border basis and is registered for such purposes with the CMVM and is therefore authorised to conduct the marketing (comercialização) of funds in Portugal.