Insight Multi-Asset Bond Funds
Insight Investment team
Adam Mossakowski
Portfolio Manager, Fixed Income
Insight Investment
Investment capabilities
Overview
• Locations: London, New York, Sydney and Tokyo
• Established: 2002
• Insight delivers innovative yet practical investment solutions
tailored to meet investors’ changing needs.
• Insight’s expertise, strength and depth of knowledge
span the entire risk-return spectrum to offer clients
complete flexibility; an essential tool in providing
tailored client solutions.
Investment scope:
Insight Investment
Assets under management
As at 30 June 2014. Assets under management are represented by the value of cash securities and other economic exposure managed for clients. FX rates as per WM Reuters 4pm Spot Rates.
Total assets under management: €361.3bn
€240.2bn
€80.1bn
€35.4bn
€3.7bn
€1.7bn
€0.2bn
Financial solutions
Fixed income
Currency management
Specialist equity
Multi asset strategies
Real assets
€312.8bn
€14.4bn
€10.3bn
€8.5bn
€6.5bn
€5.7bn
€1.7bn
€1.4bn
Pension
Insurance
Wholesale
Sovereign wealth
Financial institutions
Corporate
NFP: endowments / charities
Local authorities
By investment area
By client type
£26bn
£31bn
£32bn
£36bn
£46bn
£55bn
£73bn
£88bn
£108bn
£168bn
£204bn
£273bn
£289bn
0
25
50
75
100
125
150
175
200
225
250
275
300
325
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
Q2 2014
£bn
Insight Investment
Our credentials
As at 30 June 2014. Assets under management are represented by the value of cash securities and other economic exposure managed for clients. ¹ Excludes previous parent introduced assets prior to 2009.
.
Autonomous asset manager owned by BNY Mellon
Insight Investment
Our credentials
•
Reputation for excellence in:
− multi-asset and absolute return
− active fixed income
− liability risk management
− currency risk management
Insight
Ranked top decile for institutional fixed income
Source: Greenwich Associates 2013, UKIC FI-13 fixed Income investment. Results are based on interviews with 15 UK consultants evaluating fixed income managers. Greenwich Quality Index scores for each evaluator range from 1,000=‘Excellent’ to 0=‘Poor’ with a population mean of 500
Greenwich Quality Index investments 2013
Manager F
Insight
Manager E
Manager R
Manager H
Manager G
Manager I
Manager T
Manager C
Manager U
Manager B
Manager L
Manager J
Manager O
Manager P
Manager A
Manager N
Manager D
Manager S
8
10
12
14
16
300
350
400
450
500
550
600
650
700
N
um
ber
of
c
ons
ul
tant
s
ev
al
uat
ing
Greenwich Quality Index Fixed Income Investments
Accessing Insight’s multi-strategy capabilities
Alpha and Beta delivery from a 19-strong Currency & Fixed Income Team
8
Beta: strategic allocation between fixed income markets – no equity risk
Currency
Alpha: accessing ‘best ideas’ from Insight’s specialist teams
Insight Strategic
Bond Fund
Absolute Return
Bond Fund
Adam Mossakowski
Peter Bentley
Investment
grade credit
Asset Backed Securities
Credit Default Swaps
High yield
Interest rate swaps
CoCos
Loans
Collateralised Loan
Obligations
Government bonds
Government futures
Inflation linked bonds
Emerging market debt
Delivering alpha
Insight Bonds Plus Fund, historic performance contribution (bp)
800
600
400
200
0
200
400
600
800
1,000
1,200
2007
2008
2009
2010
2011
2012
2013
Summary: today’s environment needs a different approach
Risks/opportunities
Asymmetric interest rate risk
Concentrated market indices
Sovereign credit risk
Bank deleveraging
A global grab for yield
Potential olutions
Absolute return bond investment
Allow manager greater investment
freedoms
Long and short positions
Coverage of all areas of bond market: diversification
Expertise to seek out less “crowded”
investments in the credit markets
Non-traditional bond investment can still deliver positive returns
Absolute
Return Bond Fund
Neutral
Neutral
Neutral
–
–
1.7%
Neutral/
Negative in a
rising environment
Negative
Negative
Positive
4 years
–
4.3%
Insight fixed income offering
Source: Insight as at 30 June 2014
Absolute
Return Bond Fund
Neutral
Neutral
Neutral
–
–
1.7%
Insight Strategic Bond
Fund
Neutral / Negative
Negative
Positive
4 years
–
4.3%
Rising rate environment
Rising inflation
Stable rate environment
Nominal duration
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
63
67
71
75
79
83
87
91
95
99
03
07
11
UK base rates
UK gilt yields
Policy and rates
Source: Bloomberg
UK Rates
The problem
•
High(ish) inflation
•
Near zero cash rates
•
How do you protect real wealth?
The grab for yield
•
Need to take duration risk
•
…or credit risk
•
…or both
The risks
•
Policy makers want to ‘normalise’ rates…
The path forwards
How the grab for yield can still work in a rising rate environment
The ‘breakeven’ partially protects bondholders
Market expectations
BBB Breakeven
Gilt Breakeven
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
10.00%
07
08
09
10
11
12
13
14
15
16
UK Base Rate, and market expectations
5yr Gilt Yield
5yr BBB Yield
15
Credit
Source: Bloomberg-80
-60
-40
-20
0
20
40
60
80
100
120
0%
2%
4%
6%
8%
10%
12%
14%
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Moody's Trailing 12 Month Speculative Grade Default Rate (LHS)
US GDP (inverted, no scale)
US Fed; Loan Officer Survey (RHS)
Expect a benign default environment
Credit
M&A and cash balances
Source: Bloomberg
Deal volume (m)
Cash balances, % assets
6%
7%
8%
9%
10%
11%
12%
13%
14%
North America
Western Europe
0
100
200
300
400
500
600
700
800
900
Q102
Q104
Q106
Q108
Q110
Q112
Q114
North America
Western Europe
Credit
Summary
0.5x
1.0x
1.5x
2.0x
2.5x
3.0x
Total leverage - US
Net leverage - US
Total leverage - Europe
Net leverage - Europe
•
Lending conditions favourable, and low overall
yields keep financing costs down
•
Corporates are cash-rich – have been hording
through the crisis years
•
Corporate leverage is moderately increasing,
but from a position of strength
Risks
•
Increase in covenant-lite new issuance
•
Reckless M&A
... but these are concerns for the future
Summary
•
Grab-for-yield still ongoing
•
Credit still attractive – in the right areas
19
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
0%
2%
4%
6%
8%
10%
12%
14%
16%
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
Moody's Trailing 12 Month Speculative Grade Default Rate (LHS)
GBP Non-Govt Investment Grade, Spread over Govt (RHS)
Investment Grade Credit
High Yield
210%
5%
10%
15%
20%
25%
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
European High Yield, Spread over Govt (LHS)
Moody's Trailing 12 Month Speculative Grade Default Rate (LHS)
iTraxx Indices
X-Over
iTraxx CDS indices
•
Indices that reference a basket of single-name
credit default swaps (CDS) e.g.
–
Senior Financials
–
Subordinated Financials
–
HiVol (high volatility names)
X-Over (crossover)
•
This index references 60 European BB or BBB/BB
‘crossover’ split rated companies, e.g.
–
Air France
–
Fiat
–
Lafarge
•
Can be used to create negative exposure to High
Yield – investor ‘buys protection’
•
High degree of correlation to physical market
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
04
05
06
07
08
09
10
11
12
13
iTraxx European Crossover Index (bp)
European BB High Yield, Spread (bp)
High Yield
Hedged stock selection
Market
•
Overall high yield market may be
expensive, but there are still
plenty of interesting stock
selection opportunities worth
exploiting
Opportunity
•
Issuers aggressively refinancing
at lower yields – bonds
periodically trading to call price
•
M&A causing additional volatility
Tactic
•
Continue to invest in
fundamentally solid companies
•
…but hedge out market risk, e.g.
buy iTraxx X-Over protection
-50
50
150
250
Differential
200
250
300
350
400
450
500
550
600
650
700
J
a
n-13
F
e
b-13
Ma
r-1
3
A
pr
-1
3
Ma
y
-1
3
J
u
n-13
J
ul
-13
A
u
g-13
S
e
p-13
Oc
t-1
3
N
ov
-13
D
ec
-13
J
a
n-14
F
e
b-14
Ma
r-1
4
A
pr
-1
4
Ma
y
-1
4
iTraxx Crossover Index
Wind
23
ABS
Source: JP Morgan as at 30 June 2014
Asset Backed Market
•
Spreads have compressed from
crisis-wides
•
But still paid more spread than
like-rated corporate bonds
•
And better asset-backing and
recovery rates
Ongoing potential for spread
tightening
•
ECB and QE of ABS assets
•
Regulatory changes
0
200
400
600
800
1,000
1,200
1,400
Feb 07
Jun 08
Oct 09
Mar 11
Jul 12
Dec 13
bp
UK RMBS AAA 5y GBP
UK Non-Conforming AAA 3y GBP
Dutch RMBS AAA 5y EUR
Europe CMBS AAA 5y EUR
Insight long term “fair value” level
25
ABS
Collateralised Loan Obligations (CLOs)
What are they
•
Tranched security backed by
underlying pool of loans, typically
to SMEs
•
Can invest in different tranches
•
Market recently re-opened for
new business
Why own them
•
Significant pick-up in spread
versus similarly rated RMBS,
CMBS and corporate bonds
ABS
High yield vs Loans vs CLOs
•
In the High Yield space the pick-up in spread is very attractive
Source: Barclays, Credit Suisse, Wells Fargo as at 31 December 2013. * Implied rating by Insight Investment
Feature
Covered
Senior
Tier 2
Tier 2 CoCo
AT1 CoCo
Seniority
Own asset pool,
then Senior
Senior
Subordinated to
Senior
Subordinated to
Senior
Subordinated to Tier
2
Maturity
Hard bullet
Hard bullet
Hard with earlier
call/s
Hard with earlier
call/s
Perpetual with
earlier call/s
Coupon payment
Mandatory
Mandatory
Mandatory
Mandatory
Optional
(even if equity
dividend
is paid)
CET1 write-down
trigger
None
None
None
5.125-7%
5.125-7%
Loss absorption
mechanism
None
None
None
Write-down on
ratio trigger
Write-down on
ratio trigger
Typical spread*
40bp
100bp
180bp
320bp
510bp
A new bank capital structure
Source: Insight Investment, *based on Barclays USD bonds, iBoxx as at 15 June 2014
330bp more spread per annum
140bp more spread per annum
CoCos
Trading example
Market
•
Banks heavily incentivised to issue;
–
Regulator desire
–
Tax deductible coupons
–
Improved Senior/Tier 2 ratings
Opportunity
•
Banks periodically overpaying for
certainty of execution when bringing
new CoCos to the market
•
This also distorts secondary CoCo
and vanilla bank debt market
Tactic
•
Exploit RV mispricings
•
…but hedge some of the risk
0
100
200
300
400
500
600
700
N
ov
-12
J
a
n-13
Ma
r-1
3
Ma
y
-1
3
J
ul
-13
S
e
p-13
N
ov
-13
J
a
n-14
Ma
r-1
4
Ma
y
-1
4
Barclays Subordinated 5yr CDS
Barclays 7.625% 2022 Tier 2 CoCo
175
225
275
325
375
Differential
Who has been buying CoCos?
Change in ownership…
Source: Barclays, JP Morgan, SocGen as at 31 December 2013
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
RABO $17
(Nov-11)
BACR $22
(Nov-12)
KBC $23
(Jan-13)
SG $18
(Sep-13)
ACAFP $33
(Sep-13)
CS $25
(Sep-13)
POP $18
(Sep-13)
SG $23
(Dec-13)
BACR E20
(Dec-13)
Asset managers
Insurance/pension
Hedge funds
Private banks
Banks
Other
CoCo summary
Potentially flawed asset class…
•
Full coupon optionality removes structural seniority over shareholders
•
No natural buyer base – most bonds rated sub-investment grade, excluded from indices anyway
But…
•
Strong pressure and incentive to issue…
•
€37bn of AT1 CoCos and €34bn of other CoCos printed thus far
•
c. €85bn more to come
•
Asset class is here to stay
•
Periodic trading opportunities… for now…
BNY Mellon Absolute Return Bond Fund
Current asset allocation and yield breakdown
33
Asset allocation
Yield breakdown
Asset class
Yield over
Euribor
(%)
Investment grade corporates (net long and short)
0.11
ABS
0.37
EMD (net long and short)
0.24
High yield (net long and short)
0.17
Loans
0.22
Money market instruments and governments
0.11
Total
1.16
-50%
0%
50%
100%
Cash and money market instr.
Emerging Market Debt Fund
CRE
ABS
Loans
Interest rate swaps
CDS
HY Corporates
IG Corporates
Government futures
Government bonds
Past performance is not a guide to future performance.
Insight Strategic Bond Fund
Fund positioning
•
High Yield exposure is predominantly short dated
•
7% in CLOs
•
11% in Cocos
Allocation
Hedge
Average
Spread (bp)
Average
Hedge
Spread (bp)
Av. Rate
Duration
(years)
Av. Spread
Duration
(years)
Average
Yield
(%)
Government bonds and rates
19.6%
-77.4%
0
-0
-12.7
-
-1.3
High yield
24.4%
-3.8%
601
-253
3.0
3.0
6.8
Investment grade non-financials
10.8%
284
6.8
6.9
4.8
Financials
23.0%
363
5.4
5.4
5.0
ABS
23.7%
270
0.2
4.0
3.5
Emerging markets
13.5%
-1.7%
345
-68
4.9
5.1
4.3
Overall Fund
115.0%
-82.9%
371
-11
0.9
4.3
4.5
360
Insight's absolute return strategy credentials
Insight’s capabilities
•
Established track record in institutional absolute
return bond strategy (targets Libor+ 2%) extending
back to 2006
•
Existing strategy:
− has delivered strong returns with limited
drawdown in distressed markets
− ‘buy’ rated by the major global investment
consultants
− AUM: £4.4bn/€5.2bn
•
Absolute Return Bond Fund:
− Launched March 2012
− Performance aim of cash (3 month Euribor) + 3%
− Daily liquidity, UCITS compliant
− ‘Gold’ rated by S&P Capital IQ
Past performance is not a guide to future performance. AUM figures are as at 31 December 2013.
¹ Insight institutional absolute return strategy launched 31 August 2006. Returns are gross of fees and in GBP to 28 February 2014. All returns over one year are annualised. This investment strategy shown is used to illustrate Insight's skills and experience, it is not an indication of how the BNY Mellon Absolute Return Bond Fund will perform. Performance numbers are provisional and subject to change. FX rates as per WM Reuters 4pm Spot Rates.
Insight institutional absolute return strategy performance
(calendar year)
1
Insight institutional absolute return strategy performance
1
3.16
3.88
6.12
4.59
0
1
2
3
4
5
6
7
1 year
3 years (pa)
5 years (pa)
Since
Performance track records
Selected UK bond capabilities
Past performance is not a guide to future performance. These track records are shown to illustrate Insight’s skill and experience and are not a representation of how the fund may perform. Returns data is gross of fees and in GBP to 31 January 2014. All returns over one year are annualised. The impact of management and performance fees can be material. Generally, investment
management fees are charged based upon the size of the portfolio. Some portfolios also include fees based on investment performance. A fee schedule providing further detail is available on request from BNY Mellon Asset Management International Limited. Insight UK Corporate All Maturities Fund(Composite C0621) is gross of fees and in GBP to 28 February 2013. Benchmark: iBoxx £ Non-Gilts index. Inception: November 2004. Insight UK Government All Maturities Fund. (Composite C0623) is gross of fees and in GBP to 28 February 2013. Benchmark: FTSE All Stocks Gilts index. Inception: November 2004. Sterling Liquidity Fund: benchmark: 7 Day GBP Libid, inception: 31 December 2002, currency: GBP.A copy of a fully compliant GIPS performance record for each composite is available in the Appendix.
Insight UK Government All Maturities
Insight UK Corporate All Maturities
Insight Sterling Liquidity
0.50
0.50
0.50
0.67
0.76
0.34
0.35
0.36
0.42
0.43
0.0
0.2
0.4
0.6
0.8
1.0
1 month
3 month
1 year
3 years (pa)
5 years (pa)
%
Composite
Benchmark
Performance track records
Selected specialist bond capabilities
Past performance is not a guide to future performance. These track records are shown to illustrate Insight’s skill and experience.
Returns data is gross of fees and in GBP to 31 January 2014. All returns over one year are annualised. The impact of management and performance fees can be material. Generally, investment management fees are charged based upon the size of the portfolio. Some portfolios also include fees based on investment performance. A fee schedule providing further detail is available on request from BNY Mellon Asset Management International Limited. Libor plus (ABS) (C0652): benchmark: 3m GBP Libor, inception: 31 December 2007. Short duration high yield (C0810): benchmark: 3m GBP Libid, inception: 30 November 2009. Bonds plus (C0041): benchmark: 3m GBP Libor, inception: 31 August 2006. Absolute Insight Emerging Market Debt Fund: benchmark: 3 Month GBP Libid, inception: 28 February 2007, performance shown is for GBP share class, base currency of the fund is USD.
Short duration high yield
Libor plus (asset backed securities)
Absolute Insight Emerging Market Debt Fund
Bonds plus (global absolute return bonds)
Credit research resources
Experienced in-house credit resources
Year(s) of industry experience. As at April 2014.
David Averre
Head of Credit Analysis, Telecoms Media Technology (26 yrs)
Duncan Westbrook ABS Structured credit Sector 11 years Anna Stevens Banks Insurance Finance companies Sector 7 years Eleanor Price Food Leisure Paper and Packaging
Transport Sector 19 years Lionel Trigalou Banks Insurance Finance companies Sector 16 years Sunil Patel Utilities Sector 6 years Alex Moss Mining Steel Real Estate Sector 26 years Tristan Teoh ABS Structured credit Sector 8 years Robert Sawbridge Consumer non-cyclicals Sector 6 years Simon Cooke Telecoms Media Technology Sector 3 years 20 years Cathy Braganza Sector Chemicals Energy Greg Newman Sector ABS Structured credit <1 year Jeremy Deacon ABS Structured credit Sector 22 years Uli Gerhard
Oil and Gas
Sector 16 years Ranbir Lakhpuri Loans Sector 13 years 3 years David Herrington Corporates Sector Charles-Henri Boivin Sector Autos Capital goods Building Materials 9 years
Shaheer Guirguis
Head of Secured Finance (13 yrs)
Important Information
Past performance is not a guide to future performance. The value of investments and the income from them is not guaranteed and can fall as well as rise due to stock market and currency movements. When you sell your investment you may get back less than you originally invested.
This is a financial promotion for Professional Clients and/or distributors only. This is not intended as investment advice. You should read the Prospectus and Key Investor Information Document (KIID) for each fund in
which you want to invest. The Prospectus and KIID can be found at www.bnymellonim.com.
Any views and opinions expressed are those of the investment manager, unless otherwise noted.
This document should not be published or distributed without authorisation from BNYMIM EMEA.
Portfolio holdings are subject to change at any time without notice, are for information purposes only and should not be construed as investment recommendations.
Insight Strategic Bond Fund disclosures
The Fund may not be registered for sale in all markets. The Fund is a sub-fund of BNY Mellon Investment Funds, an investment company with variable capital (ICVC) incorporated in England and Wales under registered number IC27 and authorised by the Financial Conduct Authority. BNY Mellon Fund Managers Limited (BNY MFM) is the Authorised Corporate Director. BNY Mellon Fund Managers Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1998251. Authorised and regulated by the Financial Conduct Authority. The investment adviser of the Insight sub-funds is Insight Investment.
ICVC investments should not be regarded as short-term and should normally be held for at least five years. There is no guarantee that the Fund will achieve its objective. This Fund invests in international markets which means it is exposed to changes in currency rates which could affect the value of the Fund. The Fund will use derivatives to generate returns as well as to reduce costs and/or the overall risk of the Fund. 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 bonds are affected by interest rates and inflation trends which may affect the value of the Fund. The Fund holds bonds with a low credit rating that have a greater risk of default. These investments may affect the value of the Fund. The Fund invests in emerging markets. These markets have additional risks due to less developed market practices. The Fund invests in asset-backed securities which means your investment is likely to be closely linked to changes in the value of the underlying assets on which the asset backed securities are based. The Fund takes its charges from the income of the Fund in the first instance. The impact of Fund charges may be material on the value of any income you receive from your investment. There is potential for capital erosion if insufficient income is generated by the Fund to cover these charges .A complete description of the risk factors is set out in the Prospectus in the section entitled "Risk Factors".
BNY Mellon Absolute Return Bond Fund disclosure
The Fund may not be registered for sale in all markets. The Fund is a sub-fund of BNY Mellon Global Funds, plc, an open-ended investment company with variable capital (ICVC), with segregated liability between sub-funds. Incorporated with limited liability under the laws of Ireland. It is authorised by the Central Bank of Ireland as a UCITS Fund. The Management Company is BNY Mellon Global Management Limited, approved and regulated by the Central Bank of Ireland. Registered address: 33 Sir John Rogerson’s Quay, Dublin 2, Ireland. This investment should not be regarded as short-term and should normally be held for at least five years.
The performance aim is 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. This Fund invests in international markets which means it is exposed to changes in currency rates which could affect the value of the Fund. Investments in bonds are affected by interest rates and inflation trends which may affect the value of the Fund. The Fund holds bonds with a low credit rating that have a greater risk of default. These investments may affect the value of the Fund. The Fund may invest in emerging markets. These markets have additional risks due to less developed market practices. The Fund may invest in structured products which means your investment return is likely to be closely linked to changes in the value of the underlying assets on which the structured products are based. The Fund takes its charges from the income of the Fund in the first instance. The impact of Fund charges may be material on the value of any income you receive from your investment. There is potential for capital erosion if insufficient income is generated by the Fund to cover these charges. The Fund will use derivatives to generate returns as well as to reduce costs and/or the overall risk of the Fund. 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. The Fund employs a long/short strategy through the use of derivatives. This strategy is substantially different from 'long only' funds and returns are likely to vary. With both long and synthetic (i.e. created through derivatives) short positions, it is unlikely to achieve the same capital growth as a long-only fund in a rising market but should not experience the same level of decline in a falling market. However, neither of these outcomes is guaranteed for the Fund. The share class uses techniques to try to reduce the effects of changes in the exchange rate between the share class currency and the base currency of the Fund. These techniques may not eliminate all the currency risk.
This document is issued in the UK only by BNY Mellon Investment Management EMEA Limited, BNY Mellon Centre, 160 Queen Victoria Street, London EC4V 4LA. Registered in England No. 1118580. Authorised and regulated by the Financial Conduct Authority. BNY Mellon Investment Management EMEA Limited, BNY Mellon Investment Funds, BNY Mellon Fund Managers Limited , and any other BNY Mellon entity mentioned are all ultimately owned by The Bank of New York Mellon Corporation.
