Trade Finance Fixed Income Strategy

Transcription

1 Trade Finance Fixed Income Strategy Highlights Attractive, floating rate returns Diversifies portfolios to reduce reliance on traditional performance drivers Potential for higher absolute returns versus traditional inflation hedge products Low or negative correlation to other asset classes Exploit asymmetric/private market information Early stages of a new asset class cycle Investment Performance as of June 30, 2018 Gross Strategy Return % Net Strategy Return % Return % Q18 YTD 1 Year 3 Years 5 Years Since Inception Inception Date: 4/1/10 : ICE Libor 1-Month Average See Notes to the Schedule of Rates of Return and Statistics. Portfolio Statistics as of June 30, 2018 Supplemental information to the GIPS presentation attached Portfolio Statistics Average Life months Weighted Average Coupon 4.72% Weighted Average Bond Price $98.27 Number of Securities 137 : ICE Libor 1-Month Average Past performance is no guarantee of future results. 5-Year Statistics vs. Benchmark Strategy Standard Deviation Sharpe Ratio Tracking Error Treynor Ratio 3.68 N/A Information Ratio Alpha Beta Correlation 0.14 N/A R-Squared INSTITUTIONAL Sales Material. Not for Distribution to the Public. 1

2 Portfolio Statistics as of June 30, 2018 Sector Allocation (%) Region Weightings (%) Banking 18.1 Energy 17.6 Foreign Sovereign 13.0 Basic Industry 11.3 Consumer Non-Cyclical 10.1 Services 6.8 Utility 4.3 Supranational 3.1 Consumer Cyclical 2.2 Capital Goods 1.8 Telecommunications 0.9 Government Guaranteed 0.6 Cash/Cash Equivalents 10.2 North America 0.2 Sub Saharan Africa 28.3 MEA 16.4 Asia 14.8 Eastern Europe 13.3 LATAM 15.4 Cash/Cash Equivalents 10.2 Western Europe 1.5 Top Country Weightings (%) Nigeria 7.40 Turkey 7.10 Brazil 6.50 Egypt 5.60 Argentina 4.90 Indonesia 4.10 Russia 3.60 Kenya 3.30 Pakistan 3.20 Tanzania 3.00 Angola 2.50 United Arab Emirates 2.20 Ghana 1.70 Lebanon 1.70 Bahrain 1.60 Kazakhstan 1.50 Bangladesh 1.40 Morocco 1.40 Netherlands 1.40 Oman 1.40 Tunisia 1.40 Cash/Cash Equivalents 9.80 Philosophy Trade Finance offers investors the potential for a source of uncorrelated return, with low volatility and high return that adjusts with inflation. It is an asset class that requires specialized expertise including intensive legal and operational due diligence, a deep understanding of risk and how to mitigate it, and relationships with the largest global banks. We believe that as the worldwide demand for trade continues to grow, a diversified pool of trade transactions will consistently deliver the pure alpha that investors seek. Investment Process Trade Finance refers to loans that are made to finance a specific trade transaction. The loans are collateralized by the goods being financed and are self-amortizing from the proceeds of the transaction. Trade Finance loans float at a spread over Libor and the lenders build risk mitigants into the deals to minimize the chance of loss. Trade Finance presents high barriers to entry as the market requires unique skills and experience. Federated has spent seven years developing partnerships and analytic skills to efficiently access the market. A summary of our investment process follows. Deals are typically sourced through global banks, specialized insurance companies or traders. Federated s initial due diligence includes an analyses based on the following investment criteria: type of financing structure, reputation of arranger, strength of obligor/guarantor, pricing, risks, and compliance with investment guidelines and the current portfolio. An initial screening document is produced and circulated to Federated s Trade Finance investment committee members; interest to move forward is assessed. Once the decision to move forward is made, detailed due diligence is performed based on five quantitative and three qualitative factors: Quantitative Factors Origination: Assess quality and track record of originator, define originator s role in the transaction and define originator s relationship with the borrower. Obligor: A thorough review of obligor including but not limited to: credit analysis, shareholders, market position, access to capital markets and quality of audit/accounting firm. Country: A country s credit rating, historic treatment of trade flows, the importance of the sector to this country and currency convertibility are all considered. Sector: Evaluated under the following considerations: Strategic priority, critical imports, FX earner, macro sector themes, and liquidity and tax/tariff issues. Mitigants: The proposed deal is also evaluated under the following possible mitigants: production, operational and payment issues. Commodity, price, environmental, country and legal/documentation considerations are also examined closely. Qualitative Factors The structure and pricing of the deal are closely analyzed with consideration of the portfolio s yield target, concentration and tenor. Deal Structure: Tenor, grace period, amortization schedule, drawing conditions and financing structure of the deal are thoroughly reviewed. Deal Pricing: Relative value of spreads to market, value for risk and return projections are carefully considered. Portfolio: The tenor, yield target and concentration of the Trade Finance portfolio are carefully considered. Concentration analysis includes region, country, sector and obligor structure. Past performance is no guarantee of future results. Supplemental information to the GIPS presentation attached. 2

3 Benefits of Trade Finance Alpha Generation Inefficiencies exist for non-bank investors which can be consistently exploited Diversifier Reduces reliance on traditional return drivers Negligible Interest Rate Risk Self-liquidating transactions of less than 2-year credit duration risk High Income Average target coupon is bps above ICE Libor Originate-to-Hold Model Banks have skin-in-the-game by retaining significant portion on balance sheet Unique Access Financial investors can participate in global trade growth traditionally the domain of commercial banks Floating Rate Coupon is floating rate set at spread to ICE Libor Low Volatility Historical annualized volatility of approximately 1% Uncorrelated Returns Low-to-negative correlations with most major market indices Key Investment Team Ihab L. Salib Senior Head of International Fixed Income Group Joined Federated: 1999 Investment experience: 26 Years Christopher McGinley Head of Trade Finance Team, Portfolio Manager, Joined Federated: 2004 Investment experience: 14 Years Dalia Kay Joined Federated: 2013 Investment experience: 24 Years Patrick Bayliss Joined Federated: 2013 Investment experience: 28 Years Antriksh Robbie Gautam Assistant Joined Federated: 2014 Investment experience: 17 Years 3

4 Schedule of Rates of Return and Statistics Trade Finance Fixed Income ICE LIBOR 1-Month Average Periods Ending 6/30/2018 Gross Return Returns (%) Net Return (Assuming Maximum Fee) Q YTD Year Years (Annlzd) Years (Annlzd) Apr10-Jun18(Annlzd) Gross Return Net Return Benchmark Return * 3-Yr St Dev Benchmark* 3-Yr St Dev Number of %of Portfolios Dispersion** Carve-Outs Assets (mil) Firm Assets (bil) N/A N/A <5 N/A 0.00% N/A N/A <5 N/A 0.00% N/A N/A <5 N/A 0.00% <5 N/A 0.00% <5 N/A 0.00% % % <5 N/A 0.00% *Represents the 3-year annualized standard deviation for both the composite and index returns. This statistic is used to measure the volatility of composite returns. **Standard deviation is calculated using gross returns. Standard deviation is not applicable ( N/A ) for any period if fewer than five accounts are in the composite for that period. (See footnote 5) This composite includes portfolios utilizing Federated s trade finance approach, focusing on both fundamental credit sensitive security selection and top-down risk controls to ensure proper portfolio diversification. Since inception of this composite through September, 2013, this process utilized a partner who provided expertise in credit research and security selection. Personnel from the partner were hired by Federated in October, Typically, portfolios in this composite are compared to LIBOR. The London Interbank Offered Rate (LIBOR) is a daily reference rate based on the interest rates at which banks borrow unsecured funds from other banks in the London wholesale money market (or interbank lending market). LIBOR is calculated by converting the average monthly yield toa return (yield divided by 360 multiplied by days in month). Portfolios eligible for this composite may include portfolios managed on behalf of registered investment companies (mutual funds) or separate account portfolios. Investments in trade finance-related instruments may entail credit, liquidity, currency and market risks in addition to other risks, such as the risk of investing in foreign securities and emerging market securities. Investments in less developed or emerging markets generally entail greater political, economic, market, tax, credit and other risks, and generally have greater price volatility than securities issued or traded in developed markets. This composite was created June Federated Investors has managed portfolios in this investment style since August Performance shown for 2010 is for a partial period starting on April 1, Federated Investors claims compliance with the Global Investment Performance Standards ( GIPS ) and has prepared and presented this report in compliance with the GIPS standards. Federated Investors has been independently verified for the period of January 1, 1992, through March 31, The verification report is available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis, and (2) the firm s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation The firm s separately managed account fee schedule for this product is 0.85% on the first $25 million; 0.75% on $25 - $50 million; 0.65% on $50 - $75 million; 0.50% on assets greater than $75 million. Currently, all composite net-of-fee returns are calculated using highest fee. See disclosure notes for any appropriate historical fee calculations. Actual fees may vary by client. See Notes to the Schedule of Rates of Return and Statistics 4

5 Notes to the Schedule of Rates of Returns and Statistics: 1. Federated Investors is a global, independent, multi-strategy investment management firm with offices in Pittsburgh, New York, Rochester, Boston, London, Dublin, and Frankfurt. For GIPS purposes, Federated Investors is defined to include the assets of registered investment companies, separate (or private) accounts, managed accounts (including wrap accounts) and commingled or collective trusts that are advised or sub-advised by the following subsidiaries: Federated Advisory Services Co.; Federated Equity Management Co. of PA; Federated Investment Counseling; Federated Investment Management Co.; Federated Global Investment Management Corp.; International Management Limited; MDT Advisers; Federated Securities Corp.; effective December, 2008, (the date of acquisition) the institutional assets of Federated Clover Investment Advisors, and effective September, 2009, (the date the assets were brought into compliance) the SMA/Wrap assets of Federated Clover Investment Advisors; and effective April, 2012 (the date of acquisition) Federated Investors (UK) LLP. Effective with the January 1, 2011, change in GIPS policies regarding fair value, the assets of the Capital Preservation Fund (a Guaranteed Investment Contract vehicle) were included in the defined firm assets. Prior to that date they were excluded as they are not market value based investments. Firm assets on this report exclude the advisory-only, model-based assets that maybe included in other reports providing total firm assets. 2. Interest income and dividends are recognized on an accrual basis. Returns include the reinvestment of all income. 3. All market values and performance information are valued in U.S. dollars unless currency is denoted in composite title. 4. With the exception of the Federated Clover Investment Advisers composites, annual composite dispersion is measured and presented using the asset weighted standard deviation of the returns of all of the portfolios included in the composite over the entire year. Quarterly dispersion is measured using all portfolios included in the composite for that quarter. With regard to Federated Clover Investment Advisers composites, annual dispersion is measured using the equal weighted standard deviation of the returns of all the portfolios included in the composite over the entire year. 5. dispersion does not measure the risk of the product presented, it simply measures the return variance among portfolios managed in a similar fashion. This variance can be affected by variations in cash flow or specific client parameters among the portfolios comprising the composites, as well as by Federated s execution of strategy across accounts. 6. See the composite description language on the prior page for a discussion on appropriate fees currently applied to calculate composite performance. With regard to the institutional composites not managed by the Federated Clover or MDT Advisers teams, for the period July 1, 1992 through September 30, 2009, net of fee performance was calculated monthly by reducing the gross composite return by the highest actual fee of any account in the composite for that month, regardless of investment vehicle. Prior to this, the maximum management fee charged for the period July 1, 1992 through September 30, 1992 was used to calculate net of fee performance back to inception of the composite. In addition, further fee information can be obtained from Federated s respective Forms ADV Part 2 Brochure Item Additional information regarding the policies for valuing portfolios, calculating performance, and preparing compliant presentations, as well as a complete list and description of the firm s composites is available upon request. 8. Past performance is not indicative of future results. 9. See disclosures on the Schedule of Rates of Return and Statistics Reports for additional information. For more information on the portfolio or other investment vehicles, please contact your Federated Representative. For More Information Federated Institutional Sales x6588 contactinstitutional@federatedinv.com Federated Investors, Inc. Federated Investors Tower 1001 Liberty Avenue Pittsburgh, PA G (7/18) Federated Investment Counseling Federated is a registered trademark of Federated Investors, Inc Federated Investors, Inc. INSTITUTIONAL Sales Material. Not for Distribution to the Public. 5