Ignis arc madrid oct13

Ignis Absolute Return Credit Fund Chris Bowie

Head of Credit Portfolio Management and Portfolio Manager

October 2013

0

2013: high credit volatility

October 13

1

Ignis Absolute Return Credit Fund

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13

Performance year-to-date

Markit iBoxx Euro Corporates TR

Source: Lipper, from 31/12/2012 to 30/08/2013

-3%

-2%

-1%

0%

1%

2%

3%

Jan 0

8

Mar 0

8

May 0

8

Jul 0

8

Sep

08

No

v 08

Jan 0

9

Mar 0

9

May 0

9

Jul 0

9

Sep

09

No

v 09

Jan 1

0

Mar 1

0

May 1

0

Jul 1

0

Sep

10

No

v 10

Jan 1

1

Mar 1

1

May 1

1

Jul 1

1

Sep

11

No

v 11

Jan 1

2

Mar 1

2

May 1

2

Jul 1

2

Sep

12

No

v 12

Jan 1

3

Mar 1

3

May 1

3

Jul 1

3

Monthly returns of iBoxx Euro Non-Sovereign Index (Total Return)

Credit is not a low risk asset class

October 13

2


Source: Bloomberg, from 31/12/2007 to 30/08/2013

Volatility not just caused by sovereign yield exposure

October 13

3


-4%

-3%

-2%

-1%

0%

1%

2%

3%

Jan 0

8

Mar 0

8

May 0

8

Jul 0

8

Sep

08

No

v 08

Jan 0

9

Mar 0

9

May 0

9

Jul 0

9

Sep

09

No

v 09

Jan 1

0

Mar 1

0

May 1

0

Jul 1

0

Sep

10

No

v 10

Jan 1

1

Mar 1

1

May 1

1

Jul 1

1

Sep

11

No

v 11

Jan 1

2

Mar 1

2

May 1

2

Jul 1

2

Sep

12

No

v 12

Jan 1

3

Mar 1

3

May 1

3

Jul 1

3

Monthly capital returns from spread moves

Source: Bloomberg/Ignis based on spread change (iBoxx EUR Non-Sovereign Index) x duration = spread return. Data from 31/12/2007 to 30/08/2013

Absolute return strategies can counter this volatility

October 13

4


-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13

Performance year-to-date

Markit iBoxx Euro Corporates TR Ignis Absolute Return Credit I EUR

Source: Lipper, based on the Ignis Absolute Return Credit Fund EUR I share class net of fees from 31/12/2012 to 30/08/2013

Past performance is not a guide to future performance. The absolute return nature of the strategy means it is targeting positive

returns, but this is not a guarantee and investors may not get back the original capital invested.

Absolute return strategies can enhance risk/return profile

October 13

5


Source: Ignis, assumptions based on combination of historic/forecast performance of assets. All data for illustrative purposes only

3%

4%

5%

6%

1.5% 2.0% 2.5% 3.0%

% E

xpec

ted

An

nu

alis

ed R

etu

rns

% Expected Annualised Volatility

Expected Return/Volatility

Absolute return credit

Investment grade credit - EUR

Efficient frontier

10% allocation to absolute return credit

30% allocation to absolute return credit

Growth in the developed world is recovering

Unusually accommodative monetary policy expected to end

- Fed tapering to reflect self-sustaining US recovery

- QE in UK to end

- Eurozone has stopped its decline

Yields still at historic lows, a move back to where they should be at this stage of the capital cycle will lead to losses

October 13

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Outlook: challenging conditions for credit to continue

Traditionally, the flow of new issuance and secondary trading has been supported by investment banks’ risk appetite and risk capital

Banks’ capital reserves have shrunk post-crisis due to regulatory constraints/risk aversion

While new credit issuance still being absorbed, liquidity within the secondary market has been severely constrained

This restricts the long-only manager’s ability to trade corporate bonds both cheaply and in size

Credit derivatives offer far more liquidity

October 13

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Liquidity has also become an issue

New issuance

Secondary trading

Liquidity

Pure alpha Market neutrality Positive performance in

all market conditions Zero duration risk

Absolute Return Credit

October 13

8


Designed to deliver:

High conviction

research ideas Global opportunities Investment grade to

high yield credit Liquid CDS as part of

pair trading strategy

Investing in:

Low volatility (6% ceiling)

Low correlation with traditional asset classes

High information ratio

Targeting:

Ignis Credit: multi-specialist team managing €16.8bn

Analysts Years in industry

Sector Background

David Meade 28 Corporates Fidelity, Morgan Stanley, S&P

Michael Ewing 24 Banks Epic, UBS

Rosalie Pinkney

16 Financial Institutions

BGI, Fitch

Janaka Nanayakkara

13 CMBS, ABS Chalkhill, M&G, Investec

Scott Duggal 10 ABS Fitch, Shell AM

Nadia El Alaoui

9 TMT, industrials BNY Mellon, Lehman

Albane Poulin 7 Fixed rate ABS, utilities

Insight

Matt Creamer 5 Money market research

KPMG

Faiz Boustany 1 Insurance Joined Ignis from university

October 13


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Portfolio managers

Years in industry

Fund type Background

Chris Bowie 21 3rd party, fixed rate ABS

AEGON, Murray Johnstone

Phil Heaney 23 Financials Minet, Trade Indemnity, WestLB

Adam Walker 15 3rd party, non-financials, Europe

Barclays

Matt Guzzo 15 Floating rate ABS Hypo Real Estate

Gordon Shannon

6 Fixed rate ABS Towers Watson

Source: Ignis at 31/08/2013

Investment process: simplicity and pragmatism

Positions sized to historic volatility and stop loss set

Most profitable opportunities selected and appropriate hedge determined

Idea generation from detailed research

Trade propositions debated and filtered

Generate

Challenge

Decide Implement

Profits taken/stop loss activated/positions closed

Monitor

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Research agenda set by Head of Credit Research

Filtered universe of circa 270 global issuers divided into two groups:

- Tier 1: complex, volatile issuers that present the greatest opportunity and risk

- Tier 2: stable, well-known issuers presenting fewer opportunities and risks

Additional capacity to research adhoc issuance

Database identifies anomalous credits by sector, ratings band, currency and on an individual basis

Credit universe filtered to ensure focused research

*Source: Ignis at 31/05/2013; **Source: Ignis at 31/03/2013

Credit sector exposure* ABS

Banks

Cash

Consumers

Covered

Financial Services

Gilts

Industrials

Insurance-Wrapped

Insurance

Overseas Governments

Sovs/Supras

TMT

Utilities

Credit opportunities exposure**

Tier 1

Tier 2

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Superior proprietary technology:

Enables all pricing dislocations to be isolated and analysed

Contains daily spread data back to 2003

Cross-references market and stock news to price moves

Identifying relative value opportunities

October 13


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Spread of bond versus sector regression Ratings’ spread history

Snapshot of bonds filtered by criteria Credit yield curve

Challenge Generate /

Ideas reviewed and tested by heads of

portfolio management and

credit research

• Most profitable opportunities selected

• Suitable position size set • Exit strategy determined • Existing holdings reviewed

Analysts put forward investment rationale: • performance drivers/catalyst • suitable hedge instrument (to

eliminate market risk) • price target/time-horizon • downside case/stop-loss • expected pay-off

Regular meetings and ongoing debate to ensure optimal portfolio positioning

Identify best ideas

October 13

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Proposition Decide Challenge

Idea to be refined Portfolio construction stage

Decide Challenge /

Sizing trades

0

50

100

150

200

250

300

350

400

450

Dec 10 Mar 11 Jun 11 Sep 11 Dec 11 Mar 12 Jun 12 Sep 12

RBOS CDS EUR SR 5Y|BP HSBC BK CDS EUR SR 5Y|SP

Implement

Credit 1 Credit 2

Analyse two credits at latest spreads (1:1)

0

50

100

150

200

250

300

350

400

450


RBOS CDS EUR SR 5Y|BP HSBC BK CDS EUR SR 5Y|SPCredit 1 Credit 2 (adjusted spreads)

Establish ratio to equalise spread (1:2.1)

Ratio calculated at

latest spread

Source: Ignis. All data for illustrative purposes only.

October 13


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-150

-100

-50

0

50

100

150

200


Historic difference between the equalised credits plotted

Standard deviation band calculated

Trade sized to ensure downside risk limited to single standard deviation move

October 13

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Sizing trades

Source: Ignis. All data for illustrative purposes only.

Implement

Historic difference of equalised credits (with standard deviation band)

Example position size calculation

Historic standard deviation of pair 180 bps

Spread duration value 500 bps

Maximum position size (of fund) 5.55%

+1 STD

-1 STD

Average

October 13

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Portfolio construction and risk management

Existing holdings constantly monitored, rationale challenged

Liquidity risk

- CDS quotes from two or more counterparties

- spread “margin of safety” in low liquidity markets

Volatility risk

- volatility ceiling of 6%

Hedge ratio contribution monitored and adjusted if volatility between the pair changes from inception

Stop-loss*

- checks undertaken at 25bps loss

- initiate close of position at 50bp loss (assuming normal market conditions)

Leverage

- fund market exposures capped at 3x (currently 2x)

Diversification

- not for its own sake

- diversification of trade types, by industry and sector

Monitor gross sold protection

Monitor

*These are internal parameters which are not currently subject to independent review

200

250

300

350

400

May 13 Jun 13 Jul 13

Post NL

Telecom ItaliaResearch insight:

Post NL likely to be a more stable credit than Telecom Italia over near term

Action taken:

Long Post NL vs short Telecom Italia

Isolating α in a bear market

October 13

17


Entry point

Exit point

Continued large funding requirements

More cyclical

Telecom Italia

Improving credit

following resolution of issues

Less cyclical

Post NL

Source: Ignis/Bloomberg based on trade from 31/05/2013 to 17/07/2013. All data for illustrative purposes only.

200

250

300

350

400


Post NL

Telecom ItaliaResearch insight:

Post NL likely to be a more stable credit than Telecom Italia over near term

Action taken:

Long Post NL vs short Telecom Italia

Outcome:

Long leg tightened and short leg widened

Gap between them widened from +30 to +155: making money

Gained €130,650 (long) Gained €109,881 (short)

Overall profit €240,532 (34bps)

Isolating α in a bear market

October 13

18


Source: Ignis/Bloomberg based on trade from 31/05/2013 to 17/07/2013. All data for illustrative purposes only.

Entry point

Exit point

0

20

40

60

80

100

120

140

160

180


Bp

s

Difference between the two credits

0.4%

0.9%

0.2% 0.2%

0.0%

0.2%

0.4%

0.6%

0.8%

1.0%

3 Months YTD Since launch Annualised Return

Performance

Ignis Absolute Return Credit I EUR

Performance

October 13

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Source: Lipper, based on the Ignis Absolute Return Credit Fund EUR I share class net of fees from 31/07/2012 to 30/08/2013.

*Source: Lipper/Ignis, ex post rolling 1 month volatility based on the Ignis Absolute Return Credit Fund EUR I share class from 31/07/2012 to 31/08/2013

Past performance is not a guide to future performance. The absolute return nature of the strategy means it is targeting positive returns, but this is not a guarantee and investors may not get back the original capital invested.

0%

50%

100%

150%

200%

250%

300%

0%

1%

2%

3%

4%

5%

6%

7%

Jul 12 Aug 12 Sep 12 Oct 12 Nov 12 Dec 12 Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13

Volatility and leverage Ex Ante Volatility (LHS)

Ex Post Volatility (LHS)

Gross Leverage (RHS)

Lowly correlated to other risk assets

Market neutrality

October 13

20


Ignis Absolute Return Credit

Fund

MSCI World Index

Citigroup World Gov’t Bond Index

Citigroup European

Gov’t Bond Index

iBoxx Non Gilt GBP

iBoxx Non Sovereign

EUR

Barclays Capital Global

High Yield

JP Morgan Emerging

Market Bond Index USD

Ignis Absolute Return Gov’t Bond Fund

Ignis Absolute Return Credit Fund 1.00

MSCI World Index -0.11 1.00

Citigroup World Gov’t Bond Index

-0.10 -0.12 1.00

Citigroup European Gov’t Bond Index

-0.23 0.07 0.81 1.00

iBoxx Non Gilt GBP -0.06 -0.17 0.77 0.78 1.00

iBoxx Non Sovereign EUR

-0.12 -0.04 0.74 0.81 0.83 1.00

Barclays Capital Global High Yield

-0.25 0.58 0.20 0.30 0.15 0.21 1.00

JPM Emerging Market Bond Index USD

-0.21 0.35 0.55 0.57 0.43 0.51 0.69 1.00

Ignis Absolute Return Gov’t Bond Fund

-0.01 0.11 -0.31 -0.19 -0.34 -0.29 -0.12 -0.15 1.00

Correlation

1.00

0.80

0.60

0.40

0.20

0.0

-0.20

-0.40

-0.60

-0.80

-1.00

Source: Morningstar, based on the Ignis Absolute Return Credit Fund EUR I share class net of fees from 31/07/2012 to 30/08/2013.

Past performance is not a guide to future performance. The absolute return nature of the strategy means it is targeting positive returns, but this is not a guarantee and investors may not get back the original capital invested.

What sets our absolute return strategy apart?

October 13

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Future volatility for fixed income investors

Trajectory for yields is not only down

Our strategy can benefit from high volatility within credit markets

Bottom-up, unconstrained

High conviction global holdings

Risk management embedded within process; robust controls

Why us? Why different? Why now?

Designed to deliver:

- positive performance in all market conditions

- market neutrality

- zero interest rate risk

*Source: Ignis at 31/08/2013. ^This is the rate that large banks use to borrow from, and lend to, one another on the overnight market. Other share classes are available.**Performance fee is net of fees, over compounded cash rates and subject to a high water mark.

Fund manager Chris Bowie

Fund launch 31 July 2012

Fund AuM* €85.6m

Structure UCITS IV SICAV

Domiciled Luxembourg

Benchmark EONIA^

Liquidity Daily dealing

Share classes available in EUR, CHF, GBP, USD, SEK

Minimum investment EUR A Class: €1,000 EUR I Class: €1,000,000

Annual management fee EUR A Class: 1% EUR I Class: 0.5%

Performance fee** Fund manager is entitled to 10% of performance generated above EONIA^ with a high water mark

Registered for sale: Luxembourg, UK, Spain, Germany, Austria, France, Italy, Sweden, Belgium, Finland and the Netherlands

Fund profile

October 13

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Disclosure

This information is intended for professional clients and investment professionals only and should not be relied upon by retail investors.

The opinions expressed here represent the views of the fund manager at the time of preparation and should not be interpreted as investment advice.

Distribution of this document and the offering of shares in certain jurisdictions may be restricted by law and accordingly persons into whose possession this document comes are required to inform themselves about and to observe such restrictions. This document does not constitute an offer or solicitation to anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such offer or solicitation.

Further detailed information regarding the Fund, its Prospectus, its Key Investor Information Document (KIID), its latest annual reports and any subsequent half-yearly reports (including information on how to switch, buy and sell units of the Fund and other unit classes available), is available free of charge from Ignis Investment Services Ltd. You can also obtain these documents through our website www.ignisasset.com/international.

Past performance is not a guide to future performance. The value of investments can fall as well as rise and is not guaranteed.

The Absolute Return Credit Fund will primarily invest in CDS which carry additional risks to investing directly in cash bonds. The fund will be subject to the credit risk of the counterparty as well as that of the CDS reference asset. If a credit event takes place, the CDS will be subject to the legal terms and conditions of the contract. This means the fund’s performance is unlikely to track the performance of broader bond and equity markets. While this creates the opportunity for the fund to deliver positive returns in falling markets, it also means that the fund could deliver negative returns in rising markets. The value of investments and any income from them can fall as well as rise and is not guaranteed. Exchange rate movements may cause the value of investments to fluctuate. The use of independent ratings is not a recommendation to buy and is not a guide to future returns.

The Ignis Absolute Return Credit Fund is a sub fund of Ignis Global Funds SICAV, an investment company organised under the laws of the Grand Duchy of Luxembourg as a Self Managed SICAV. The investment company has its registered office at Vertigo-Polaris, 2-4 Eugene Ruppert, L-2453 Luxembourg, and is authorised and regulated by the Commission de Surveillance du Secteur Financier (CSSF) in Luxembourg.

The sub fund is a Recognised Scheme in the UK under Section 264 of the Financial Services & Markets Act 2000 and is promoted in the UK accordingly.

The sub fund is currently registered for public distribution in the following countries: Luxembourg, UK, Spain, Germany, Austria, France, Netherlands, Belgium, Sweden, Finland and Italy. Copies of all relevant scheme documentation can be obtained free of charge from the locally appointed paying agents. Austrian Paying Agent: Unicredit Bank Austria, 8398 Global Securities Sales & Services, P.O. Box 35, A-1011 Vienna; Belgian Paying Agent: Fastnet Belgium SA, B-1000 Brussels, Avenue de Port 86C, b320; French Paying Agent: Société Générale SA, 29 Boulevard Haussmann, F-75009 Paris; German Information Agent: Société Générale SA, Neue MainzerStraße 46-50, D-60311 Frankfurt / Main; Italian Paying Agent: RBC Dexia, via Vittor Pisano 26, 20124 Milan; Luxembourg Paying Agent: Société Générale, 11 Avenue Emile Reuter, L-2420 Luxembourg; Netherlands Paying Agent: ING Bank NV, Van Heenvlietlaan 220, Location Code BV.06.01, NL-1083 CN Amsterdam; Spanish Paying Agent: RBC Dexia Investor Services España SA, calle Fernando El Santo no20, Madrid 28010; Swedish Paying Agent: SEB Merchant Banking, Sergels Torg 2, SE-106 40 Stockholm.

This document has been issued by Ignis Investment Services. Ignis Investment Services is registered in Scotland Number SC101825. Registered Office: 50 Bothwell Street, Glasgow G2 6HR. Authorised and regulated in the United Kingdom by the Financial Conduct Authority.

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October 13


http://www.ignisasset.com/international

Ignis arc madrid oct13

Economy & Finance

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