CANSO INVESTMENT COUNSEL LTD. PBY-5A Canso Canso Lysander Conference Call July 22, 2014 1
Investing from the ground up IMPORTANT DISCLOSURES This presentation is for use by investment advisors only and not an invitation to invest in the Canso Funds or the Lysander Funds. This does not constitute a public offering of sale. Purchases in the Canso Funds or Lysander Funds can only be made through an Investment Advisor on the terms in a fund s offering memorandum or simplified prospectus by qualified investors. For example, only accredited investors may invest in funds sold via an offering memorandum. Each purchaser of units in a fund may have statutory or contractual rights of action. The information in this document is subject to change without notice. Commissions, trailing commissions, management fees and expenses are all associated with fund investments and will reduce returns commensurate with their amounts. Refer to a fund s offering documents before investing. A fund s values are not guaranteed, its value may frequently change and past performance may not be repeated. Nothing in this publication is intended to constitute legal, tax securities or investment advice, nor an opinion regarding the appropriateness of any investment, nor a solicitation of any type. This is a publication of Lysander Funds Limited and has been prepared solely for information purposes. It is made available on an "as is" basis. Lysander Funds Limited does not make any warranty or representation regarding the information. This document is for Investment Advisor use only 2
CANSO INVESTMENT COUNSEL LTD. PBY-5A Canso Founded in 1997. Credit and Corporate Bond Specialist. $13 Billion in Assets. Owned by Investment Staff. 3
Large Experienced Team Credit Skill 44 employees 26 involved in research and portfolio management 10 Portfolio Managers 5 Associate PMs 8 Research Analysts 3 Traders. 4
Market Environment FTSE Debt Market Index Returns Ending June 30, 2014 3 mos. 1 Yr. 3 Yr. 5 Yr. 10 Yr. Canada 1.6 3.6 3.7 3.8 5.0 Provincial 2.8 6.5 5.7 6.2 6.2 Corporate 1.8 6.1 5.8 6.6 6.1 Overall Universe 2.0 5.3 4.8 5.2 5.6 91 Day Treasury Bill 0.2 1.0 1.0 0.8 2.0 S&P/TSX 6.4 28.7 7.6 11.0 8.8 S&P 500 (US$) 5.2 24.6 16.6 18.8 7.8 Source: FTSE TMX Global Debt Capital Markets 5
Canso Pooled Funds: Annualized Returns As at June 30 th, 2014 Pooled Funds* YTD 1 Year 3 Years 5 Years 10 Years Canso Short Term & Floating Rate Fund 1.7% 3.6% 4.1% 4.3% - Since Inception 4.4% (Jan 2006) FTSE TMX Canada Short Overall Bond Index 1.8% 3.2% 2.8% 3.2% 4.1% - Canso Canadian Bond Fund 5.5% 7.3% 6.4% 6.7% - 6.5% (March 2008) FTSE TMX Canada Universe Bond Index 4.8% 5.3% 4.8% 5.2% 5.6% - Canso Corporate Bond Fund 5.6% 8.3% 7.5% 7.7% 6.8% 6.8% (June 2004) FTSE TMX Canada All Corporate Bond Index 4.8% 6.1% 5.8% 6.6% 6.1% - Canso Corporate Value Fund 5.2% 12.1% 10.1% 11.3% 9.1% 10.4% (Dec 2000) FTSE TMX Canada All Corporate Bond Index 4.8% 6.1% 5.8% 6.6% 6.1% - *Performance for the Canso pooled funds is calculated net of Class C fees. 6
Lysander Funds: Annualized Returns As at June 30 th, 2014 Lysander Funds YTD 1 Year Since Inception Lysander Corporate Value Bond Fund (Series F) LYZ 801F 4.4% 10.8% 9.0% (Dec 23 rd, 2011) Lysander Bond Fund (Series F) LYZ 804F 3.6% 5.0 % 4.0% (Dec 28 th, 2011) Lysander Balanced Fund (Series F) LYZ 800F 7.8% 32.3% 21.9% (Dec 28 th, 2011) Canso Credit Income Fund (PBY.UN) (Series F) 9.6% 18.4% 10.6% (July 16 th, 2010) 7
Market Environment Long yields have dropped YTD. Floating rate assets are in demand. Yield spreads continue to compress. High Yield and Bank Loans are expensive. 8
Interest Rates Remain at Historical Lows (10 Year Canada) 5 Yr 10 Yr 30 Yr Jan 1 st 2.0% 2.8% 3.2% Mar 31 st 1.7% 2.5% 3.0% Jun 30 th 1.5% 2.2% 2.8% Source: FTSE TMX Group Inc. 9
Analysis Process Financial Capacity Liquidity Cashflow & Business Default Risk Security & Covenants Economy Industry CANSO RATING MAXIMUM LOSS 10
Credit Analysis: Company executing on turnaround plan. Limitation on additional indebtedness. Revenue declines appear to have bottomed. Bond is 7 year, 6% coupon, convertible at US $10. CANSO RATING: B+ MAXIMUM LOSS: 1 11
Credit Analysis: Irish domiciled issuer of Asset Covered Securities. Irish legislation supports solid credit quality. Insulated from parent HRE Group; support from German government. Purchased at spreads of 270 bps over Canadas. CANSO RATING: A MAXIMUM LOSS: 1 12
Credit Analysis: Senior Secured Amortizing P-3 structure. DBFM of the Confederation Bridge. Mixed traffic volumes. Good structural protections. Came to market at a spread of 66 bps. Accumulated at spreads above 415 bps. CANSO RATING: BBB- MAXIMUM LOSS: 2 13
Recent Selected Portfolio Transactions BUYS Eurofima Merrill Lynch NHA MBS Met Life Navient WTH Car Rental SELLS B of A FRN GE FRN IBM Corp Lloyds Nortel Networks 14
Market Environment Source: BAML Index Data. In December 2012 BAML replaced DBRS with Fitch. Ratings reflect an average of Fitch, Moody s and S&P. 15
Market Environment Source: BAML Index Data 16
Market Environment Source: BAML Index Data 17
Market Environment CAD Corporate Bond Market (in USD millions) Investment Grade High Yield USD Corporate Bond Market (in USD millions) Investment Grade High Yield Global Corporate Bond Market (in USD millions) $13,273 3.63% $1,287,561 21.98% $2,047,422 20.36% Investment Grade High Yield $4,569,307 78.02% $8,008,123 79.64% $352,662 96.37% BAML Index Global US Canada Investment Grade $8,008,123 $4,569,307 $352,662 High Yield $2,047,422 $1,287,561 $13,273 Total $10,055,545 $5,856,868 $365,934 Broad $43,384,384 $14,557,405 $1,247,866 Source: BAML Index Data 18
Outlook Select economies improving. Monetary policy will eventually tighten. Less money from central banks. Credit markets grinding tighter. 19
CAD Credit Spreads Remain Attractive Source: BAML Index Data 20
Significant Value-Added by Informed Credit Selection. 21