Market Views & Investment Strategies Focus on H2O MultiStrategies. Marc Maudhuit

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1 Market Views & Investment Strategies Focus on H2O MultiStrategies Marc Maudhuit Morningstar Summit Brussels 9 th March 2016

2 H2O s ID 37 employees inc. 15 investment professionals working together for more than 11 years on average AUM was EUR 10.2 bn. as of February 29, 2016 H2O manages 4 lines of products for an international client base Source: H2O AM, as at 31/12/2015 2

3 H2O s DNA Specialty A global, active, top-down, mostly relative value, and unconstrained approach Process Fully discretionary, no black box Strong convictions fed by macro/valuation/liquidity inputs Strategies mainly financed using derivatives, inc. futures & forex forwards Uniqueness Strong alpha generator for more than 20 years Maintain low correlation with major asset classes Daily liquidity Source: H2O AM 3

4 The key to delivering risk-adjusted outperformance: An investment team organised by market factors CEO Bruno Crastes Carlos Daurignac MACRO Loïc Cadiou Jeremy Touboul TECHNICALS Juliette Pianko Thomas Delabre CIO Vincent Chailley Natasha Clendinnen Pascal Dubreuil MICRO Gonzague Legoff Stéphane Gaillard VOLATILITY Philippine Watteaux Source: H2O AM Christophe Chappuis VALUATION QUANTITATIVE ANALYSTS FLOWS Philippe Bernard 4

5 The key to delivering risk-adjusted outperformance: A well-organized investment universe Directional USD G4 Duration Credit Exposure Equity Beta Systemic Relative Value Inter-bloc & Intra-bloc allocations G4 country & yield curve allocations Sector Allocation (IG, HY, ABS/MBS, EMs) Country & sector allocations Specific Relative Value Overlays Source: H2O AM Trading (bond & equity futures, forex, volatility) 5

6 H2O s currency world IDR 4 BRL MXN USD 1 TWD KRW 3 INR TRY 1. Directional exposure: USD vs., & CAD 2. Inter-bloc positions : arbitraging the, & CAD blocs 3. Intra-bloc positions : arbitrages within the four blocs 4. Emerging currencies ZAR CAD SGD GBP NOK CHF SEK AUD NZD PLN Source: H2O AM 6

7 UCITS absolute performance product range Investment horizon, targeted ex-post volatility bracket, performance fee & hurdle rate (*) Investment Horizon 1-2 years 2-3 years 3-4 years 4-5 years Absolute Return Bonds & Currencies Bonds & Currencies & Equities H2O Adagio H2O Allegro (**) 25% > EONIA + 1% p.a. 20% > EONIA H2O Moderato (**) H2O Vivace (**) 25% > EONIA + 2% p.a. 20% > EONIA Targeted volatility bracket 1-2% 2-4% 4-8% 8-15% (*) Institutional share classes (**) Not distributed in Belgium Source: H2O AM 7

8 UCITS absolute performance product range (1) Investment horizon, indicative ex-ante tracking error, performance fee & hurdle rate (*) Investment Horizon 3 years 4 years 5 years Multi-Asset-Class Benchmarks Global Fixed Income (Bonds & Currencies) Global Equities (Equities & Currencies) Global Balanced (Bonds & Equities & Currencies) H2O MultiBonds (**) 25% > JPM GBI Broad + 2% p.a. H2O MultiStrategies 25% > (50% JPM GBI B + 50% MSCI W DM) + 3% p.a. H2O MultiEquities 25% > MSCI World DM + 4% p.a. Maximum indicative ex-ante tracking error 8% (*) Institutional share classes (**) Not distributed in Belgium Source: H2O AM 8

9 Macro scenario & market themes NB: The analyses and opinions referenced herein represent the subjective views of the author(s) as referenced, are as of date shown and are subject to change without prior notice. There can be no assurance that developments will transpire as may be forecasted in this material.

10 Main macro themes for H Further divergence between developed and emerging countries 2. Where is the recession in the US 3. EMU growth convergence towards G4 4. Wages & price pressure in US to speed up Fed normalization 5. Low commodity prices and weakening Chinese growth are structural Source: H2O AM 10

11 Divergence between DM & EM countries It happened before, and world growth was fine Source: H2O AM & Bloomberg. 11

12 US surveys: as in 1998 Source: Bloomberg, H2O AM 12

13 EMU growth catching up Activity surveys point towards EMU growth of 2% in Q Source: H2O AM & Bloomberg. 13

14 Wage & price pressures in US to speed up the Fed If implemented, SME compensation plans should lead to a core CPI north of 2.5% by June 2016 Source: H2O AM & Bloomberg. 14

15 Wage & price pressures in US to speed up the Fed (2) Fed fund rate: the Market running behind the FOMC dots running behind the Taylor rule Houston, we have a problem Source: H2O AM & Bloomberg. 15

16 If 2015 looked like 1997, will 2016 be resembling 1998 Opec basket rebased 100 in Jan 1985 Opec basket rebased 100 in Dec 1996 Opec basket rebased 100 in Jan SP500 rebased 100 in Jan 1985 SP500 rebased 100 in Dec 1996 SP500 rebased 100 in Jan Nb. of days Source: H2O AM, data as of 29/02/16.M Nb. of days

17 Main 2016 strategic positions Bonds Currencies Equities Short G4 duration Short US-EMU 10-year spread Flattening of US & EMU yield curves Long GIPS (Italy first) against Bunds USD-bloc Euro-bloc Commodity-FX-bloc Yen-bloc Emerging currencies Long MXN Long NOK, short CHF Long CAD Short KRW Short Asia (INR, SGD, TWD) Long RUB Long MSCI World Long EuroStoxx vs. S&P 500; long Nikkei vs. MSCI EM Long European financials, Long US home builders & automobiles Short defensives (European food & pharmaceuticals, US consumer staples) Short US small- and mid-caps vs. large caps 17

18 H2O MultiStrategies objectives & constraints

19 H2O MultiStrategies investment objective Outperform a composite benchmark made up of 50% JP Morgan Government Bond Index Broad + 50% MSCI World DM over a minimum 4-year investment horizon by: a) targeting a tracking-error of max 8% per annum; b) taking positions to either neutralise or emphasise the positions imbedded in the benchmark; c) taking exogenous positions outside of the benchmark universe to generate additional alpha. Source: H2O AM 19

20 H2O MultiStrategies composite benchmark H2O MultiStrategies composite benchmark is made up of: 50% JP Morgan Government Bond Index Broad 50% MSCI World Developed Markets FX weights USD 48.8% EUR 19.3% JPY 14.8% GBP 7.0% Others 10.2% Buying the fund s composite benchmark in euro results in taking long positions in G4 bonds (up to 46.5%), G4 stocks (up to 43.3%), while bearing a currency risk mainly in USD, GBP and JPY. Source: H2O AM & Bloomberg. 20

21 H2O MultiStrategies calendar year performance Year H2O MultiStrategies (*) Net Composite Benchmark (*) Net Spread 2010 (23/08) 3.01% 0.18% 2.83% % 6.44% % % 4.70% 33.90% % 0.91% 31.21% % 17.21% 3.55% % 9.60% 21.99% 2016 (29/02) % -1.35% % ITD (annualized) 11.97% 6.66% 4.98% * From 23/08/10 thru. 30/10/13, the fund was named H2O Patrimoine and was benchmarked against 70% JPM GBI Broad + 30% MSCI World DM. On 30/10/13, it was renamed H2O MultiStrategies and its benchmark switched to 50% JPM GBI Broad + 50% MSCI World DM. Source: H2O AM, as at 29/02/16 Please note that performance data shown represents past performance and is not a guarantee of future results. 21

22 H2O MultiStrategies past & present performance attributions Year 2015 H2O MultiStrategies I EUR FR Short G4 sovereigns (incl. 5Y UST) Long GIPS vs. Bunds & OATs Long Dollar Index G10 currencies positions Short EM currencies against USD Long Eurostoxx against S&P 500 Long Nikkei against EM MSCI Long European financials against EuroStoxx Short European and US defensive stocks Long/short equity Others (inc. credit & trading) Fees Benchmark Source: H2O AM, as at 29/02/16 Past 3 months drawdown % 9.5% 6.1% 1.7% 2.8% 5.0% -1.5% -1.8% 2.4% -4.6% 9.6% 33.7% H2O MultiStrategies I EUR FR Short G4 sovereigns (incl. 5Y UST) Long GIPS vs. Bunds & OATs Long Dollar Index G10 currencies positions Short EM currencies against USD Long Eurostoxx against S&P 500 Long Nikkei against EM MSCI Long European financials against EuroStoxx Short European and US defensive stocks Long/short equity Others (credit) Benchmark Please note that performance data shown represents past performance and is not a guarantee of future results /11/ /02/ % -6.9% -1.7% -0.5% -0.3% 46% 12% -6.5% -2.7% 1.1% -0.7% -4.4% -24.7% 38% 3%

23 H2O MultiStrategies ITD 3-year rolling annualized performance & volatility profile 50% 45% 40% 35% 30% 25% 20% 15% 10% 5% 0% 3-year rolling performance Average 3-year rolling performance 3-year rolling volatility Average 3-year rolling volatility Source: H2O AM, as at 29/02/2016. Please note that past performance is not indicative of future results. 23

24 Why H2O MultiStrategies? It is managed by a well-established Global Macro investment team: Vincent Chailley, the CIO, started managing Global Macro funds in April It is an Absolute Return product that: generates alpha primarily based on relative value management; whilst offering low correlation with global bonds & equity market indices. It captures a broad set of investment opportunities by: using a top-down risk allocation process across the four asset classes (i.e. Government Bonds, Currencies, Credit and Equities) in an unconstrained framework, in terms of markets, instruments and ratings 24 Important note: Investors should consider the investment objectives, risks, charges and expenses of the fund before investing. This piece of information are detailed in the fund s prospectus and KIID. To obtain these documents, please contact your usual investment advisor or visit our website Source: H2O AM.

25 Disclaimer H2O is authorised and regulated by the Financial Conduct Authority (FCA) and the Bank of England Prudential Regulation Authority (PRA), the two UK financial regulatory authorities. H2O has been assigned a C4 conduct classification and a P3 prudential classification and is listed on the UK Financial Services Register under firm reference number This document (and any attachments thereto) is confidential and for use only by the intended recipient. Access by others is unauthorized. Its content should not be relied upon and no liability or responsibility is accepted by us (H20 AM LLP) or associated companies), without subsequent written confirmation of its contents, signed by an authorized signatory. If you are not the intended recipient, please notify us promptly and delete all copies and note any discloser, copying, distribution or any action taken or omitted to be taken in reliance on the information it contains is prohibited and may be unlawful. This message is provided for information purposes and should not be construed as a solicitation or offer to buy or sell any securities or related financial instruments. Company Name & Business Office: H20 AM LLP, 2nd floor, 10 Old Burlington Street, London W1S 3AG. Company Number OC

26 Additional Notes This material has been provided for information purposes only to investment service providers or other Professional Clients or Qualified Investors and, when required by local regulation, only at their written request. It is the responsibility of each investment service provider to ensure that the offering or sale of fund shares or third party investment services to its clients complies with the relevant national law. In Belgium This material is provided by NGAM S.A., a Luxembourg management company authorized by the Commission de Surveillance du Secteur Financier and incorporated under Luxembourg laws and registered under n. B Registered office of NGAM S.A.: 2, rue Jean Monnet, L-2180 Luxembourg, Grand Duchy of Luxembourg. The above referenced entity is a business development unit of Natixis Global Asset Management S.A., the holding company of a diverse line-up of specialised investment management and distribution entities worldwide. The investment management subsidiaries of Natixis Global Asset Management conduct any regulated activities only in and from the jurisdictions in which they are licensed or authorized. Their services and the products they manage are not available to all investors in all jurisdictions. Although Natixis Global Asset Management believes the information provided in this material to be reliable, including that from third party sources, it does not guarantee the accuracy, adequacy, or completeness of such information. The provision of this material and/or reference to specific securities, sectors, or markets within this material does not constitute investment advice, or a recommendation or an offer to buy or to sell any security, or an offer of services. Investors should consider the investment objectives, risks and expenses of any investment carefully before investing. The analyses, opinions, and certain of the investment themes and processes referenced herein represent the views of the portfolio manager(s) as of the date indicated. These, as well as the portfolio holdings and characteristics shown, are subject to change. There can be no assurance that developments will transpire as may be forecasted in this material. This material may not be distributed, published, or reproduced, in whole or in part. All amounts shown are expressed in USD unless otherwise indicated.