FOR PROFESSIONAL CLIENTS ONLY. NOT TO BE REPRODUCED WITHOUT PRIOR WRITTEN APPROVAL. PLEASE REFER TO ALL RISK DISCLOSURES AT THE BACK OF THIS DOCUMENT. ABSOLUTE INSIGHT EMERGING MARKET DEBT FUND OPPORTUNITY Unconstrained approach managed by an experienced team: The Absolute Insight Emerging Market Debt Fund invests on a best ideas basis. It is unrestricted by the constraints of investing against a traditional index, so there is no obligation to hold a position unless the Fund s managers believe that it is worth taking and offers investors access to a rich opportunity set that combines top-down and bottom-up analysis that helps to identify key issues in markets. The Fund can invest across the asset class, whether in government or corporate debt, in local or external currencies, taking each market s characteristics into account via a macroeconomic assessment of each country in which it invests. The award-winning management team 1 has delivered attractive performance at lower volatility than emerging market debt benchmarks (see below), producing a potentially more appealing return profile than mainstream indices and many traditional long-only portfolios. Access to a diversified source of attractive investment opportunities: Emerging market debt is a global asset class worth over $14trn and covering over 70 countries, that offers investors the potential return and diversification benefits of investing in economies at different stages of economic and structural development. Distinctive absolute return approach aiming for low volatility: Investors face a wide range of return possibilities when they invest across emerging market debt and currencies. In particular, the timing of an allocation can dramatically affect the returns of a long-only investor. We believe that an absolute return approach that does not adhere to traditional benchmarkdriven norms allows an investor to potentially capture some of the upside offered within emerging markets, while managing downside risk, with the intention of producing attractive riskadjusted returns over the long term. FUND SNAPSHOT Objective: Provide attractive, positive absolute returns in all market conditions Approach: Contains Insight s best ideas across the blended emerging market debt (EMD) universe, looking to participate in market upside while limiting downside risk Investment universe: Interest rate, credit and currency strategies across a range of emerging markets and related instruments Scheme type: Sub-fund of an Open-Ended Investment Company, UCITS structure Fee schedule: Ongoing charges figure (OCF) 1.72%. Annual management charge (AMC) 1%. Performance fee 10%, in excess of benchmark return net of AMC, subject to high water mark 2 Share classes: Institutional and retail share classes are available, subject to different minimum investment amounts and AMC 1 2013: Best Performing Emerging Market Debt Fund over 1 and 3 years, Best Performing Long/Short Fixed Income and Credit Fund. 2015: Best Performing Emerging Markets Debt Fund, Best Performing Emerging Markets Debt Fund over a 5 year period. 2016: Emerging Markets Bonds Best Performer over a 5 year period. 2 OCF based on expenses for the year ending 31 October 2015. AMC and performance fee relate to the B1p share class. Details of different share classes are available on request. PERFORMANCE % 6 4 2 0 0.43 0.46 0.16 3 month 5.39 4.00 1 year 2.38 1.40 1.17 0.83 3 years (pa) 2.53 1.31 0.55 5 years (pa) 5.36 3.94 0.91 10 years Since (pa) inception (pa) Absolute Insight Emerging Market Debt Fund (gross, USD) Absolute Insight Emerging Market Debt Fund (net, USD) Cash (3-Month USD Libid) 4.73 3.35 1.03 Absolute Insight Emerging Market Debt Fund (gross, USD) Absolute Insight Emerging Market Debt Fund (net) JPM EMBI Global Diversified JPM GBI-EM Broad Diversified 5 years (pa) Performance (%) Volatility 2.53 3.20 1.31 3.11 4.69 6.15-0.67 11.15 Source: JP Morgan, Bloomberg and Insight as at 31 March 2018. Absolute Insight Emerging Market Debt Fund, base currency USD, shown net of 1% annual management charge and 10% performance fee for B1p share class, unless stated otherwise. Inception date: 28 February 2007.
RISK MANAGEMENT To manage risk, the Fund employs a range of hedging techniques, and uses proprietary risk metrics to size positions and trigger reviews at pre-defined limits. The Fund also incorporates an intensive risk management approach that includes risk-reduction mechanisms: for example, a stop-think trigger applies at the portfolio level, prompting an immediate review of the strategy if there is a loss of more than 3% of NAV within any one-month period. Independent oversight ensures these risk processes are robust and rigorous. INVESTMENT PROCESS The Emerging Market Debt Team carries out thorough analysis of the key themes affecting the emerging market universe. The investment process follows several stages: Country profile Geographic specialists Fundamental analysis of 70+ countries Detailed profiles on 60 countries Investment idea Portfolio construction Driven by risk management Correlations with existing positions Typical position 3%; high conviction 5% to 7% Risk management Performance Performance Aim to capture most of the upside in emerging market debt and less of the downside GUIDELINES Exposure limits Gross exposure: 200% NAV Net exposure: 100% NAV Currency exposure internal limits (gross) Single emerging market currency: 10% NAV Diversification measures Each country is a separate risk bucket Limits apply on risk at individual country level and at aggregate portfolio level Stop-think mechanisms Stop-think review triggers apply to each country risk bucket 3% of NAV stop-think trigger applies at aggregate portfolio level on a one-month rolling basis 2% stop-think Extract return from country analysis Cross-country/sector scenario planning and valuation metrics Sources of return: country, credit, rates/duration, currency Local and external; corporate and government; CDS; currency Multi-layered controls Absolute Return Investment Committee Independent risk management team Quantitative Strategy Team Position stop/think levels THE TEAM The investment team consists of seven dedicated emerging market investment specialists. The team is supported by 47 credit analysts and by Insight s wider fixed income department. The team members have extensive experience of managing emerging market debt. They have invested across the spectrum of the asset class including government, corporate and local currency instruments, as well as distressed assets, through different market cycles and major market events including the Asian financial crisis and the Russian and Argentinian debt defaults. Insight s Fixed Income Group numbers 110 investment professionals, together managing over 123.8bn of fixed income and money market assets. The team s average industry experience is 17 years. As at 31 March 2018. Assets under management (AUM) are represented by the value of cash securities and other economic exposure managed for clients. Reflects the AUM of Insight, the corporate brand for certain companies operated by Insight Investment Management Limited (IIML). Insight includes, among others, Insight Investment Management (Global) Limited (IIMG), Pareto Investment Management Limited (PIML), Cutwater Asset Management Corp. (CAMC), Cutwater Investor Services Corp. (CISC) and Insight North America LLC (INA), each of which provides asset management services.
THE KEY TO INVESTING IN EMERGING MARKET DEBT For many years emerging market debt has been a source of diversification and attractive yield to global investors, especially in comparison to debt issued in more developed markets. Investing in emerging markets has evolved significantly since the late 1990s, in tandem with the growth in the number of underlying countries that issue debt, and the respective depth and liquidity of their capital markets. Also, since the global financial crisis of 2008 and the end of the bull run in commodities, financial repression has created large distortions across global emerging market economies. This has led to a large variance in size, complexity, and structural development which means there is a range of attractive opportunities for investors able to identify the most appealing prospects. There are many different return drivers, but one of the most significant drivers is the timing of an allocation, which can dramatically affect the returns of a long-only investor. We believe that taking an unconstrained, absolute return approach that is not driven by traditional benchmarks allows an investor to manage downside risk while potentially capturing the upside available in the asset class. The Absolute Insight Emerging Market Debt Fund seeks to capture the best long and short opportunities from across the available investment universe. It is not a market neutral or relative value strategy: it is a dynamic strategy aims to manage a variety of risks to generate positive returns even when markets are falling. An unconstrained approach: historic asset allocation of the Absolute Insight Emerging Market Debt Fund % 150 120 90 60 30 0-20 -40-60 -80 Mar 10 Mar 11Mar 12 Mar 13 Mar 14 Mar 15 Mar 16 Mar 17Mar 18 Historic unencumbered cash position Historic short position Historic long position Source: Insight as at 31 March 2018. WHY THE ABSOLUTE INSIGHT EMERGING MARKET DEBT FUND? We believe the Absolute Insight Emerging Market Debt Fund offers investors significant benefits over both traditional long-only benchmarks and hedge fund approaches. The Fund operates within a UCITS structure, offering a high degree of transparency and a robust risk management process. It publishes regular updates, offers daily liquidity and a competitive fee structure. It has delivered competitive performance relative to many hedge funds, without the use of gearing. ABOUT INSIGHT INVESTMENT Insight Investment has over the past 15 years built a unique investment platform that delivers to clients outcome-oriented investment solutions. We currently manage 597bn. Our clients are among the most sophisticated institutional investors in the world and include leading pension funds, sovereign wealth funds, corporations and insurers. We build portfolios aimed at an outcome, in partnership with clients. Our investment strategies are designed to evolve to meet changing needs and stay ahead of market developments. We were among the first asset managers to bring institutionalquality processes and transparency to absolute return investing. Insight is at the forefront of developing new ways of investing, providing institutional investors with access to innovative investment strategies, coupled with robust risk management techniques. We were a pioneer in recognising the unrewarded nature of currency risk and the importance of liabilities. Liability driven investment (LDI) has been a significant contributor to protecting funding levels for pension funds over the past decade. As at 31 March 2018. Assets under management (AUM) are represented by the value of cash securities and other economic exposure managed for clients. Reflects the AUM of Insight, the corporate brand for certain companies operated by Insight Investment Management Limited (IIML). Insight includes, among others, Insight Investment Management (Global) Limited (IIMG), Insight Investment International Limited (IIIL), Cutwater Asset Management Corp. (CAMC), Cutwater Investor Services Corp. (CISC) and Insight North America LLC (INA), each of which provides asset management services.
Absolute Insight Emerging Market Debt (EMD) Fund: absolute and long-only combination 5 years, monthly measure, annualised Volatility (%) Return (Fund return gross %) Sharpe ratio Proportion of index upside captured by Fund (%) Proportion of index downside captured by Fund (%) Absolute Insight Emerging Market Debt Fund 3.20 2.53 0.62 N/A N/A 1.31 JP Morgan EMBI GD index (USD) 6.15 4.69 0.70 67.97 52.15 N/A JP Morgan GBI-EM GD index (unhedged, in USD) 11.15-0.67-0.09 52.03 23.89 N/A 50:50 (EMBI index:gbi index) 8.28 2.04 0.20 61.06 34.78 N/A Return (Fund return net %) The impact of doing so over the last five years is shown below. 5 years, monthly measure, annualised JP Morgan EMBI GD (USD) JP Morgan GBI-EM GD (unhedged, in USD) Volatility Return (%) (gross %) Replace 30% of exposure with AR EMD Replace 50% of exposure with AR EMD Sharpe Volatility Return Return ratio (%) (gross %) (net %) Sharpe Volatility Return Return Sharpe ratio (%) (gross %) (net %) ratio 6.15% 4.69% 0.70 5.03% 3.94% 3.59% 0.71 4.35% 3.43% 2.85% 0.70 11.15% -0.67% -0.09 8.49% 0.18% -0.17% -0.02 6.76% 0.75% 0.17% 0.06 50:50 (EMBI:GBI) 8.28% 2.04% 0.20 6.52% 2.08% 1.73% 0.26 5.40% 2.11% 1.53% 0.32 Source: Insight as at 31 March 2018. Composite C0629, base currency USD. EMBI GD represents JP Morgan EMBI Global Diversified Index (external debt); GBI-EM GD represents JPMorgan Government Bond Index (local market debt). Where model or simulated results are presented, they have many inherent limitations. Clients actual results may be materially different than the results presented.
IMPORTANT INFORMATION RISK DISCLOSURES Past performance is not indicative of future results. Investment in any strategy involves a risk of loss which may partly be due to exchange rate fluctuations. The performance results shown, whether net or gross of investment management fees, reflect the reinvestment of dividends and/or income and other earnings. Any gross of fees performance does not include fees and charges and these can have a material detrimental effect on the performance of an investment. Any target performance aims are not a guarantee, may not be achieved and a capital loss may occur. Funds which have a higher performance aim generally take more risk to achieve this and so have a greater potential for the returns to be significantly different than expected. Portfolio holdings are subject to change, for information only and are not investment recommendations. ASSOCIATED INVESTMENT RISKS Absolute Insight Emerging Market Debt Fund Where the portfolio holds over 35% of its net asset value in securities of one governmental issuer, the value of the portfolio may be profoundly affected if one or more of these issuers fails to meet its obligations or suffers a ratings downgrade. The issuer of a debt security may not pay income or repay capital to the bondholder when due. Derivatives may be used to generate returns as well as to reduce costs and/or the overall risk of the portfolio. Using derivatives can involve a higher level of risk. A small movement in the price of an underlying investment may result in a disproportionately large movement in the price of the derivative investment. Investments in emerging markets can be less liquid and riskier than more developed markets and difficulties in accounting, dealing, settlement and custody may arise. Where high yield instruments are held, their low credit rating indicates a greater risk of default, which would affect the value of the portfolio. The investment manager may invest in instruments which can be difficult to sell when markets are stressed. While efforts will be made to eliminate potential inequalities between shareholders in a pooled fund through the performance fee calculation methodology, there may be occasions where a shareholder may pay a performance fee for which they have not received a commensurate benefit. FIND OUT MORE Institutional Business Development businessdevelopment@insightinvestment.com +44 20 7321 1552 European Business Development europe@insightinvestment.com +44 20 7321 1928 Consultant Relationship Management consultantrelations@insightinvestment.com +44 20 7321 1023 Client Relationship Management clientdirectors@insightinvestment.com +44 20 7321 1499 @InsightInvestIM company/insight-investment www.insightinvestment.com This document is a financial promotion and is not investment advice. Unless otherwise attributed the views and opinions expressed are those of Insight Investment at the time of publication and are subject to change. This document is only directed at investors resident in jurisdictions where our funds are registered. It is not an offer or invitation to persons outside of those jurisdictions. Insight Investment reserves the right to reject any applications from outside of such jurisdictions. Insight does not provide tax or legal advice to its clients and all investors are strongly urged to seek professional advice regarding any potential strategy or investment. Issued by Insight Investment Funds Management Limited. Registered office 160 Queen Victoria Street, London EC4V 4LA. Registered in England and Wales. Registered number 1835691. Authorised and regulated by the Financial Conduct Authority. FCA Firm reference number 122259. 2018 Insight Investment. All rights reserved. CS004 UK-Q1-18 (06-18)