SKAGEN Credit EUR A global corporate bond fund Status report January 2015

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Blanche Holmes
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1 SKAGEN Credit EUR A global corporate bond fund Status report January 2015

2 SKAGEN Credit EUR A Key numbers Key numbers as of 31 January SKAGEN Credit EUR A Index (Euribor 3m) Return last month -0,5 % 0,0 % Return year to date -0,5 % 0,0 % Return since inception ( ) -2,9 % 0,1 % Current yield* 2,8 % 0,1 % Average maturity (WAM) 1,1 0,25 Average life time (WAL) 3,5 N/A Average credit spread (OAS)** 380 bps N/A 2 *Current yield changes from day to day and is no guarantee of future return ** Average option adjusted spread on the investments, cash excluded

3 Portfolio managers comments Continued Russian unrest and the low oil price, a left wing election victory in Greece and a decision of quantitative easing in the Eurozone. These are but a few of the events that took place in the financial markets in January. Pricing on corporate bonds has not changed substantially last month, but there have been negative developments. The credit market seems more stable at the end of January than it did at the end of December. In general the yield on investment grade corporate bonds is currently very low, particularly in core Europe. In order to find attractive risk/reward and to maintain good risk diversification we have more investments in emerging markets, southern Europe and the UK. In January we have reduced our exposure to Russia because of the continued unrest from the Ukraine conflict and because the negative trend for the Russian economy has continued. Companies like the Italian car maker Fiat, the Portuguese energy provider EDP and the Indian mobile phone company Bharti Airtel have contributed positively during the month. On the negative side we find offshore services provider Seadrill, the Brazilian oil producer Petrobras and the Canadian train and plane maker Bombardier. All in all the fund posted a decline for the month because of the market unrest. The average credit spread increased from 375 basis points to 380 basis points during the month. 3

4 The SKAGEN Credit investment universe SKAGEN Credit picks bonds both from the investment grade and the high yield spectrum with a high risk adjusted return potential. Minimum 50% investment grade. 4

5 Country diversification Switzerland; 3% Finland; 2% Cash; 7% India; 6% Russia; 5% Developed markets: 57 % Emerging markets: 36 % Cash: 7 % United Kingdom; 10% Brazil; 8% Norway; 3% Turkey; 7% Denmark; 3% Italy; 4% France; 4% Netherlands; 2% Canada; 8% Czech Republic; 4% Greece; 2% Nigeria; 2% Hong Kong; 3% United States; 6% Portugal; 4% Sweden; 6% 5

Sector and rating distribution Telekom; 4%

4% Energi; 16% Defensive konsumvarer; 5%

6 Sector and rating distribution Telekom; 4% Cash; 7% Råvarer; 14% B; 7% AA (Cash); 7% Bank og finans; 21% Nyttetjenester ; 8% BB; 35% Kapitalvarer, service og transport; 17% Inntektsavhen gige forbruksvarer; 6% Defensive konsumvarer; 4% Energi; 16% Defensive konsumvarer; 5% BBB; 53% Investment grade: 57 % High Yield: 43% Average rating: BBB- 6

7 Interest rate duration and time to maturity Interest rate exposure and denominated currency of bonds (before currency hedge) Currency Bond denominated Interest rate duration USD 49% 0,9 years EUR 29% 1,6 years GBP 18% 1,2 years NOK 4% 0,1 years Sum Fund 100% 1,2 years Credit exposure - time to maturity profile on bonds 70% 60% 50% 40% 30% 20% 10% 0% 60% Average time to maturity: 3,5 years 15% 13% 7% 5% Cash 1-3 year 3-5 years 5-7 years 7+ years 7

8 Top 10 investments Company Country of risk Credit rating* Percent of fund Energias de Portugal Portugal BB+ 4,3 % Bank of Baroda India BBB- 4,3 % Fiat Italy BB- 4,2 % Bombardier Canada BB- 4,2 % Braskem Brazil BBB- 4,1 % EP Energy Czech Republic BBB- 4,0 % Akbank Turkey BBB- 3,9 % Lafarge France BB+ 3,9 % Gazprom Russia BBB- 3,7 % Petrobras Brazil BBB- 3,7 % Sum top % 8 * Average bond rating

9 SKAGEN Credit Picking the best bonds from the global orchard Fact sheets for some portfolio holdings

Domicile: France Sector: Construction materials Rating: BB+ Maturity: 2018 Position: 3,9 % Spread at purchase: 185

10 Lafarge World leader in building materials. Cement (no.1), concrete (no. 4) and construction aggregates (no.2). Plans to merge with Holcim in Domicile: France Sector: Construction materials Rating: BB+ Maturity: 2018 Position: 3,9 % Spread at purchase: 185 bps Current Spread: 156 bps Triggers: Planned merger with Holcim will lead to investment grade rating Sell of non-core assets to reduce debt-level Risks: Merger fails Cyclical business segment 10

Petrobras Brazilian integrated oil company. Founded in 1953 as Brazil s national oil company. 90% of production in Brazil. Brazilian government owns of 48% of shares and 64% of votes.

11 Petrobras Brazilian integrated oil company. Founded in 1953 as Brazil s national oil company. 90% of production in Brazil. Brazilian government owns of 48% of shares and 64% of votes. The company struggled in 2014 with the low oil price, high investment program, low cash flow and an ongoing corruption case. Due to these factors, the company is more unpopular than ever. The management is now addressing these issues and we see the opportunity of a recovery going forward. We find the current pricing very attractive in relation to the company risk. Domicile: Brazil Sector: Energy Rating: BBB- Maturity: 2018 Position: 3,7% Spread at purchase: 214 bps Current Spread: 550 bps 11 Evaluation: Solid reserves Governmental support Highly unpopular Risks: Heavy capex program followed by increased debt Spread follows Brazilian government spread Ongoing corruption case

Braskem Braskem is on of the largest petrochemical companies in the Americas.

Domicile: Brazil Sector: Chemistry Rating: BBB- Maturity: 2021 Position: 4,1% Spread

and strong distribution capabilities Dominant position in the petrochemical market

12 Braskem Braskem is on of the largest petrochemical companies in the Americas. 38 industrial plants spread across Brazil, United States, Argentina and Germany. Domicile: Brazil Sector: Chemistry Rating: BBB- Maturity: 2021 Position: 4,1% Spread at purchase: 290 bps Current Spread: 413 bps 12 Evaluation: Diverse customer base and strong distribution capabilities Dominant position in the petrochemical market Declining debt levels Risks: Rating downgrade of Brazil Volatile raw material prices affect earnings

Akbank Turkish commercial bank active within various client categories. 3 rd largest in Turkey with around 1000 branches in Turkey as well as overseas business in Germany and Dubai.

13 Akbank Turkish commercial bank active within various client categories. 3 rd largest in Turkey with around 1000 branches in Turkey as well as overseas business in Germany and Dubai. Strong owner in the Sabanci family, holding a 49% post in the company. Diversified Turkish loan portfolio with Small & Micro loans growing Domicile: Turkey Sector: Financials Rating: BBB- Maturity: 2017/2018 Position: 3,9% Spread at purchase: 220/260 bps Current Spread: 234/253 Evaluation: Attractive levels, punished for being Turkish Good asset quality and funding situation Risks: Political risk in Turkey 13

Result by country (EBITDA) Brasil; 17% USA; 9% Portugal; 45% Nuclear; 17% Product mix Coal; 13% Hydro; 34% Domicile: Portugal Sector: Utility Utility Rating: BB+ Maturity:

14 Energiaas de Portugal EDP - Energias de Portugal is a well diversified energy producer and supplier in Portugal, Spain, Brazil and USA. Committed to increasing renewable energy mix towards 2017 and beyond. Result by country (EBITDA) Brasil; 17% USA; 9% Portugal; 45% Nuclear; 17% Product mix Coal; 13% Hydro; 34% Domicile: Portugal Sector: Utility Utility Rating: BB+ Maturity: 2017/2019 Position: 4,3% Spread at purchase: 160/193 bps Current Spread: 100/222 bps Spain; 25% Wind/so lar; 35% Evaluation: Low volatility, stable business Better market climate in Portugal/Spain Good leverage situation, possible IG rating? Risks: Rating influenced by Portugal external risk Regulatory price limitation on energy 14

The portfolio managers The portfolio managers draw on their expertise in the fixed income markets, as well as SKAGEN s equity fund managers long experience of successful stock-picking.

15 The portfolio managers The portfolio managers draw on their expertise in the fixed income markets, as well as SKAGEN s equity fund managers long experience of successful stock-picking. They have long-standing and complementary experience ranging from fixed income management to company analysis, risk management and trading. Ola Sjöstrand Ola Sjöstrand has worked in SKAGEN since 2006 as portfolio manager of SKAGEN s fixed income funds. He launched and has been responsible for running the SKAGEN Krona fund amongst others. Before joining SKAGEN Ola worked as portfolio manager at the Swedish Soya Group. A combination of strong analytical skills and investment experience applying SKAGEN s investment philosophy puts Ola in a strong position to find good investment cases for the fund. Ola holds a BSc in Business Administration and Economics. Tomas Nordbø Middelthon Tomas Nordbø Middelthon has worked in SKAGEN since 2010, both as a risk manager and more recently as portfolio manager of SKAGEN s fixed income funds. Before that Tomas worked within financial services in Statoil implementing financial risk management tools worldwide. Tomas holds an MBA within Finance and is a Certified Financial Analyst. He has strong analytical skills and a background from financial risk management. The combination of risk management and technical expertise is valuable in the screening and analysis of corporate bonds and portfolio construction. 15

16 For more information please visit: Latest Market report Information about SKAGEN Credit EUR on our website Unless otherwise stated, all performance data in this report relates to class A units and is net of fees. Historical returns are no guarantee for future returns. Future returns will depend, inter alia, on market developments, the fund manager s skill, the fund s risk profile and subscription and management fees. The return may become negative as a result of negative price developments. SKAGEN seeks to the best of its ability to ensure that all information given in this report is correct, however, makes reservations regarding possible errors and omissions. Statements in the report reflect the portfolio managers viewpoint at a given time, and this viewpoint may be changed without notice. The report should not be perceived as an offer or recommendation to buy or sell financial instruments. SKAGEN does not assume responsibility for direct or indirect loss or expenses incurred through use or understanding of the report. Employees of SKAGEN AS may be owners of securities issued by companies that are either referred to in this report or are part of the fund's portfolio.

SKAGEN Credit EUR A global corporate bond fund Status report May 2016

SKAGEN Credit EUR A global corporate bond fund Status report May 2016 SKAGEN Credit EUR A Key numbers Key numbers as of 31 May SKAGEN Credit EUR A Index (Euribor 3m) Return last month 0,7 % 0,0 % Return