Baring AssetManagement Limited155 Bishopsgate, London, EC2M 3XY
Tel +44 (0)20 7628 6000Fax +44 (0)20 7638 7928
www.barings.com
Authorised and regulated by the Financial Services Authority
Baring High Yield Bond Fund Berlin Citywire
November 2012
Ece Ugurtas – Director, Fixed Income & Currency
2
Agenda
• Why Barings for High Yield?
• The Baring High Yield Bond Fund
• Investment case for the asset class
• Macroeconomic Environment
3
Why Barings for High YieldSection 1
4
Baring Asset Management
• An international investment management company with a history dating back to 1762
• Operating in eleven countries with professionals from twenty five different nations
• Providing investment management services in emerging and inefficient markets, asset allocation and specialist fixed income to investors worldwide
• Working in partnership with many of the world’s largest financial institutions
• Owned by Massachusetts Mutual Life Insurance Company (MassMutual)
• Current assets under management US$50.7 bn
• 96 investment professionals
• Winner of the Queen’s Award for Enterprise: International Trade 2010
London, Boston, Dubai, Frankfurt, Hong Kong, Paris, San Francisco, Santiago, Seoul, Taipei, Tokyo, Toronto
Assets as at 30 September 2012, Investment Professionals as at 1 October 2012
5
Fixed Income at Baring Asset Management
• US$17.1 billion Fixed Income AUM: US$6.3bn in Global Fixed mandates
• 33.7% of firm’s total AUM
• Strong track record of managing fixed income portfolios for over 25 years
– Investment managers average 19 years’ experience
• Three main business lines:
– Global Government and Global Aggregate mandates
– High Yield
– EMD mandates
Source: Barings, assets as of 30 September 2012
An experienced and successful team
6
How are we different?
• We have a unique TOP DOWN scenario based approach to managing high yield
• We are NOT a bottom up pure credit selection fund
• We invest in GLOBAL high yield: European, US and Emerging Market high yield corporates
• We COMBINE top down with bottom up conducting our own individual bottom up credit analysis
Source: Baring Asset Management, October 2012
7
Our Investment Philosophy
• We believe macroeconomic factors are the primary market drivers
• We believe that markets are weakly efficient
– in the medium to long term macro economic factors determine market levels
– volatility in the short term is caused by investors positioning for a variety of outcomes
• We avoid single point forecasts
– we forecast different macro economic scenarios
• Bottom up credit analysis is essential to extract value from idiosyncratic nature of highyield bonds
Source: Baring Asset Management, October 2012
8
Investment Process Overview
Scenario process highlights attractive US vs Euro vs EM HY, rating buckets
Which sectors?
Fundamental bottom up credit analysis
Risk management & execution
Portfolio of 150-170 names
Names monitored daily by Credit Team
Source: Baring Asset Management, October 2012
9
Our Scenario Process is Different
• “What is already discounted in current market prices?”
• “How could the world look like in a year from now?”– potential shocks to the current market consensus that could occur from here
• 3 scenarios with a probability threshold of 10-15%
• Each scenario is populated with macroeconomic forecasts
– GDP, inflation, current account, budget balance for a variety of developed and emerging markets
• Forecasts are attached to those scenarios
– credit spreads, swap spreads, bond yields, currencies
Source: Baring Asset Management, October 2012
10
Current Scenarios
Scenario 1
Scenario 2
Scenario 3
Stabilisation of Global Growth
Fiscal Slippage, Inflation Risks
Financial Contagion Hits Growth
Source: Baring Asset Management, October 2012
11
Current Scenarios
The initial pace of US recovery falls back under the onset of fiscal tightening and the retrenchment within the private sector.
Growth remains at close to trend in core-Europe, whilst growth in the peripheral European economies remains weak. Fiscal retrenchment in the peripheral European countries does continue but not in a manner that threatens popular support for the Euro. The European Central Bank (ECB) maintains an accommodative monetary stance.
US bond yields rise relative to those in Europe and Japan.
Stabilisation of Global GrowthScenario 1
Global monetary policy remains very accommodative across all developed markets to counter the effects of fiscal consolidation.
Governments struggle to maintain their fiscal plans amidst disappointing growth outcomes. This leads to a deterioration in risk premia especially in those markets where central bank authorities do not engage in large scale asset purchases.
Emerging markets decouple in terms of economic outcomes – healthier growth & improving fundamentals.
Fiscal Slippage, Inflation RisksScenario 2
The shock effects of financial market contagion from a default within the European periphery send the world into a recession. Demand constrained economies suffer a modest deflation.
Global bond yields fall, albeit real yields rise, as aggressive and sustained monetary policy easing ensues. Further measures of Quantitative Easing are put in place. Credit creation processes are disrupted and risk asset performance is heavily prejudiced.
Commodity currencies suffer substantially. The Chinese abandon their commitment to CNY appreciation.
Financial Contagion Hits GrowthScenario 3
Source: Baring Asset Management, October 2012
12
Global scenariosBond and currencies, October 2012
US 10 year EUR “BBB” rated USD HY “CCC” rated EUR / USD
0
100
200
300
400
500
600
700
800
0
500
1000
1500
2000
2500
3000
1.0
1.1
1.2
1.3
1.4
1.5
USD / JPY
60
70
80
90
100
110
120
Scenario 1 Scenario 2 Scenario 3 Current
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Source: Bloomberg; Baring Asset Management, October 2012
Acknowledging a number of possible market outcomes
13
Fundamental Issuer Analysis: High Yield CorporateHow we research individual Companies
CREDIT WORTHINESS1 2 3 4 5
CORPORATE QUALITYA B C
EXAMPLESBASIC ENERGY 2B BUY
EUROPCAR 5B SELL
AGROKOR 3B HOLD
RISING FALLING
GOOD BAD
Industry
CompetitivePosition
Management / Strategy
OperationalCompetence
BUSINESSRISK
AnalystScore
AnalystScore
Policy
ProfitabilityCash Flow
CapitalStructure
FinancialFlexibility
FINANCIALRISK
Source: Baring Asset Management, October 2012
Identifying attractive issuers
14
Fundamental Issuer Analysis: High Yield CorporateUnivision Communications
Pricing vs. Peers, Sector, RatingBAM rating
S&P/Moodys
Yield Spread (bps)
Univision 3B B+/B2 6.6% 505
TVN 3B B+/B1 6.2% 600
Allbritton 2B B+/B2 4.2% 395
Sinclair - B/B2 5.4% 375
US B Rated - - 6.4% 540
Geographically diversified, but
competitive market
Dominant market-leading position in domestic market
Aggressive management policy
High margins due to lower programme costs and
favourable TV contracts
BUSINESSRISK
UnivisionScore: 3BUnivisionScore: 3B
Highly leveraged as a
result of the LBO
Significant refinancing risk with large debt maturities
in 2017
Adj. DEBT to EBITDA ~ 11.4x;
Interest coverage ~ 1.6x
Adequate liquidity and positive FCF, with cash sources cover uses >1.2x
FINANCIALRISK
Source: Barings , October 2012
Weak credit metrics, albeit strong market position, profitability and growth
15
Risk Controls
• Daily VAR reports
• Monthly portfolio analysis outlining returns across scenarios by market and rating
• Monthly risk report outlining risk contributions by geography, rating, sector and top 10 contributors to risk
• Monthly full liquidity analysis on credits trading below price 80
• Expensive List/Concern list
16
The Baring High Yield Bond FundSection 2
17
Baring High Yield Bond FundKey Characteristics
Guideline ranges Objective / Strategy• To produce a high level of income and long term capital appreciation 150-170 names• Top down combined with bottom up credit research• Focussed portfolio of best ideas in preferred sectors, ratings, markets• To outperform global high yield peer group
Risk management • Maximum active position per name 0.8/0.9%• No sector/ country limits • Max 10% CCC• ‘No default’ focused strategy• Portfolio is not constructed on single point forecast but required to be robust in at least 2 out of 3 scenarios
Minimum issue size • Liquid, active traded focus $400m & €350m
Turnover 60-70%
18
Chart layoutsTwo charts to a page
Europe HY Spreads higher vs. US HY Default rates lower in Europe …
Source: Merrill Lynch, 12 September 2012
-5000
5001,0001,5002,0002,500
Aug-00 Aug-02 Aug-04 Aug-06 Aug-08 Aug-10 Aug-12
OAS
Euro HY Index US HY Index Difference
0
4
8
12
16
Apr-08 Dec-08 Aug-09 Apr-10 Dec-10 Aug-11 Apr-12
(%)
US Europe
… but Loan Market under greater stress
0
4
8
12
16
20
Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12
(%)
US Europe
19
Where in HYMarket – US vs Europe Corporates
Gross leverage by rating Spread to government by rating
Source: Morgan Stanley, 7 September 2012, Bloomberg 15 October 2012
Europe generally less leveraged and cheaper vs. US
0.00
1.00
2.00
3.00
4.00
5.00
6.00
BB B CCC HY
EUR USD
0
250
500
750
1,000
1,250
1,500
BB B CCC HY
EUR USD
20
Where in HYMarket – US vs Emerging Corporates
Net Leverage (x) Spread per turn of Net Leverage (bps/x)
Source: Bank of America Merrill Lynch, 25 September 2012
EM Corporates have LOWER leverageyet offer more spread
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
A
BBB
BB
B
EM Corporates US Corporates
0 50 100 150 200 250 300 350
A
BBB
BB
B
EM Corporates US Corporates
21
Where in HYMost interest rate sensitive: higher rated BBs
Correlations to 5yr US Treasury by spread bucket
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11
0..300bp 300..400bp 400..500bp 500..600bp 600..700bp 700..1,000bp 1,00bp+
52wk Trailing Correl to 5yr Trsy
Source: Bank of America Merrill Lynch, 25 September 2012
B and CCC least interest rate sensitive but …
0..300bp
600..700bp
400..500bp
300..400bp
500..600bp700..1,000bp
1,00bp+
22
Where in HY Risk/Return profile of BB-B superior to ‘CCC’ rated credit
• ‘BB’ and ‘B’ credit compared to ‘CCC/C’ tend to have significantly lower default rates• Variations in excess returns also lower
Source: S&P/Bloomberg, 31 March 2012, BofA Merrill Lynch/Bloomberg, 28 September 2012
‘BB-B’ credit; lower risk and lower return volatilityGlobal Corporate Default Rates (%) Excess return over 12 months (%)
-60
-30
0
30
60
90
120
2002
2004
2006
2008
2010
2012
BB-B CCC
0
10
20
30
40
50
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
BB B CCC/C
Long-term average
23
Where in HYSectors
Source: Morgan Stanley, 16 October, 2012
HY Cash Spread vs. Gross Leverage
Deleveraging Sectors: Metals, Healthcare & Gaming
General IndustrialsRetail
Metals & Mining
Technology
Energy
Autos & PartsHealthcare
Telecom
Paper/PackagingMedia
Gaming/Leisure
Consumer Goods
300
350
400
450
500
550
600
650
2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5
Median Gross Leverage
Median Spread (bp)
2Q12 2Q11
24
31st October 2012Fund allocation by sector and credit rating
Source: Baring Asset Management: 31st October 2012. Credit Ratings show the highest rating between S&P and Moody’s. Source: Barings / customisedAllocations are subject to change
Fund Size: $1, 271.3 millionDuration: 3.5 yearsHoldings: 165
US HY51.8%
European HY
13.5%
UK HY4.2%
EMD HY18.4%
US Short Dated Govt
5.3%
Cash6.9%
Services14.1%
Energy12.5%
Cash6.9%
Basic Industry16.9%
Capital Goods3.8%
Other10.4%
Healthcare5.6%
UST s/d5.3%
Consumer Cyc6.6%
Media6.4%
Tech5.8%
Telecoms5.7%
BBB1.2%
BB27.6%
B52.1%
CCC8.9%
A-1 / AAA5.3%
Cash6.9%
By Sector
ByCredit Rating*
25
Baring High Yield Bond FundAsset Allocation Changes
Source: Barings as at 30th September 2012*Includes Australia ^includes CLO
Active Asset Allocation Calls
0%
20%
40%
60%
80%
100%Q
2 20
09
Q3
2009
Q4
2009
Q1
2010
Q2
2010
Q3
2010
Q4
2010
Q1
2011
Q2
2011
Q3
2011
Q4
2011
Q1
2012
Q2
2012
Q3
2012
Cash
EM Government Bonds
US HY
EM HY*
European HY
26
Baring High Yield Bond Fund Performance 30th September 2012
Source: Morningstar / Barings, to 30th September 2012 Fund Performance is in US Dollars on a NAV per unit basis, withgross income reinvested, Net of fees. Inception July 1993.* Morningstar GIFS Fixed Income Global High Yield Peer Group - Customised Peer Group
Past performance is not a guide to future performance
14.2
20.4
10.9
6.98.0
11.5
17.7
10.7
6.48.4
0
5
10
15
20
25
YTD 2012 1 Year 3 years (ann.) 5 years (ann.) 10 Years (ann.)
(%)
Baring High Yield Bond Fund Peer Group Median*
27
Why Barings for High Yield?
• GLOBAL high yield offering
• Distinct TOP DOWN scenario based approach
• Combined with focussed bottom up credit selection
• Proven investment track record
Source: Baring Asset Management, October 2012
28
Investment case for asset class Section 3
29
The Investment Case for High Yield Key Considerations
1. Balance sheets healthy, default rates low, leverage manageable
2. Supportive macro environment: growth recovery to ensure default rates stay low, corporate earnings grow BUT not too strong that corporates return to “equity friendly” behaviour
3. Low global interest rates for longer to intensify the search for “yield”
HY remains attractive based on strong fundamentals, valuations and technical factors
30
FundamentalsLeverage remains low & Comfortable Coverage1
Source: BofA Merrill Lynch/Bloomberg 30 June 2012
Corporates have been deleveragingStrong Interest coverage Ratios
Net Leverage(Net Debt/LTM EBITDA, x)
Interest Coverage(LTM EBITDA/Net LTM Interest Expense, x)
2.52.72.93.13.33.53.73.94.14.34.5
1996 1998 2000 2002 2004 2006 2008 2010
Leverage Ratio Average Leverage (3.6x)
2.02.22.42.62.83.03.23.43.63.84.0
1996 1998 2000 2002 2004 2006 2008 2010
CoverageRatio Average Coverage (3.3x)
31
FundamentalsMargins high, Cash on Balance Sheet high1
Source: Morgan Stanley, Bloomberg 22 October 2012
Margins at highest levels High cash on balance sheets
LTM EBITDA Margins Global HY Cash/DebtCash on balance sheet over total debt
17%
12
13
14
15
16
17
18
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
(%)
10%
2
4
6
8
10
12
14
16
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
(%)
32
Fundamentals Low Default rates1
Source: Bank of America Merrill Lynch, 15 October 2012
Global Default Rates remain low & below long term average
Current Default Rate 2.6%Moodys projects 3.0% (Dec 2012) & S&P 3.3% (Dec 2012)
0
5
10
15
20
Jan-
99
Jan-
00
Jan-
01
Jan-
02
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
EM Europe US
0
5
10
15
Dec
-81
Dec
-83
Dec
-85
Dec
-87
Dec
-89
Dec
-91
Dec
-93
Dec
-95
Dec
-97
Dec
-99
Dec
-01
Dec
-03
Dec
-05
Dec
-07
Dec
-09
Dec
-11
Global Default Rate
33
Fundamentals Record High Yield Issuance1
Source: BofA Merrill Lynch Global Research/Bloomberg, 15 October 2012
Record high issuance in last 3 years: mostly in B area,YTD 2012 $300bn
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
BB B CCC NR
34
Fundamentals New Issuance1
Source: Morgan Stanley, 22 October 2012
Prudent management of balance sheets
Use of Proceeds mainly to Refinance Debt
0
20
40
60
80
100
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
(%)
LBO Refinance Acquisition Dividend/Byback Other
35
FundamentalsRefinancing not a near term concern1
Source: BoA/Merrill Lynch - Bloomberg, 15 October 2012
“Wall of Maturity” is being managed
United States Europe
0
20
40
60
80
100
120
140
160
2012 2013 2014 2015 2016 2017 2018 2019
Maturities ($bn)
Bonds Loans
0
5
10
15
20
25
30
35
40
45
2013 2014 2015 2016 2017 2018 2019 2020
Bonds Loans
(€)
36
ValuationRisk/Reward profile is compelling2
Source: JP Morgan, S&P, 1 October 2012
Still potential for credit spread tighteningas market mis-prices default rates
From the long term perspective, credit offers value
0
2
4
6
8
10
12
14
16
Dec
-86
Dec
-88
Dec
-90
Dec
-92
Dec
-94
Dec
-96
Dec
-98
Dec
-00
Dec
-02
Dec
-04
Dec
-06
Dec
-08
Dec
-10
Default rate (%)
0
250
500
750
1,000
1,250
1,500
1,750
2,000Spread to worst
High-yield default rate High-yield spreads
25-year average = 4.1%
25-year average = 586bp
High-yield spreads 608bp
High-yield defaults 2.6%
37
ValuationSpreads still attractive on adjusted basis2
Source: Morgan Stanley & Bloomberg 5 September 2012
Adjusted Spread levels still elevated, HY still attractively valued
Leverage Adjusted Spreads Spread/(Net Debt/EBITDA)
HY Credit Spreads adjusted for Average Loss and Volatility(Spread – average historical loss / 12 month vol)
-100
-50
0
50
100
150
200
250
2001 2003 2005 2007 2009 2011
(bp/%)
Asia EU US S&P 500 Average
100
1,000
'01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
(bp/x)
Asia HY SPL Europe HY SPL US HY SPL
Asia Median
US` Median
EU Median
38
TechnicalsThe Fixed Income Menu3
Source: BofA Merrill Lynch/Bloomberg, 22 October 2012
Attractive on an ABSOLUTE & RELATIVE basis to other fixed income assets
Fixed Income Assets Yield
10yr US Treasury Bonds 1.8%
10yr European Government Bonds 1.6%
10yr UK Government Bonds 1.8%
US Investment Grade Corporate 2.8%
US Mortgage Bonds 1.3%
JPMorgan EMBI+ 4.6%
JPMorgan GBI EM Global Diversified 5.8%
OR …
US High Yield 6.1%
European High Yield 7.0%
0
5
10
15
20
25
Jan-09 Sep-09 May-10 Jan-11 Sep-11 May-12
Global High Yield BB-B (HW40)Global Broad Mkt Corp (GOBC) Global High Yield Index (HW00) Global Sovereign Broad Market Plus Index (GOPG)
39
TechnicalsHigh Yield vs. Equities 3
Source: BoA Merrill Lynch, MSCI Barra, January 2003 - September 2012
High Yield offers better risk/returnprofile to equities
52 Week Rolling Volatilities 52 Week Rolling Average Returns
0%
15%
30%
45%
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
ML Global High Yield MSCI AC World
Jan-03 – Sept-12 Global High Yield MSCI All Country World
Return (%) 9.9 7.4
Volatility (%) 8.9 19.1
Return/Vol ratio 1.1 0.4
-50%
0%
50%
100%
Jan-
03
Jan-
04
Jan-
05
Jan-
06
Jan-
07
Jan-
08
Jan-
09
Jan-
10
Jan-
11
Jan-
12
ML Global High Yield MSCI AC World
40
TechnicalsHow much do spreads need to widen for investor losses?
• HY has higher carry, lower duration offering cushion for investors
• Spreads would have to widen +600bps before “new” investors suffered losses
3
Source: Morgan Stanley 5 September 2012
Assumes time horizon to end of the year & includes last 4 months carry
0
20
40
60
80
100
0 100 200 300 400 500 600 700 800 900 1000
(% of the new HY investors in losses)
Back up in yields (+bps)
1/2 of “new money”experience losses
41
TechnicalsDemand for Yield
• Corporates are a source of inflows
• Almost 20% of market value of US, Europe and Asian Credit to investors in 2012
• EU Net supply already negative
Global Credit Net Supply vs. Market Size
Source: Morgan Stanley 5 September 2012Net Supply = Supply – coupon –calls-maturities
-10
-5
0
5
10
15
20
EUR HY EUR IG US HY US IG
2009 2012e
(%)
0
5
10
15
20
25
30
EUR HY EUR IG US HY US IG Asia IG*
Coupon/Redemptions/Calls Supply
(%)
3
42
The Investment Case for High Yield Key Considerations
1. Balance sheets healthy, default rates low, leverage manageable
2. Supportive macro environment: growth recovery to ensure default rates stay low, corporate earnings grow BUT not too strong that corporates return to “equity friendly” behaviour
3. Low global interest rates for longer to intensify the search for “yield”
HY remains attractive based on strong fundamentals, valuations and technical factors
43
Macroeconomic EnvironmentSection 4
44
The Macro Environment
• The market environment has been volatile and remains dominated by political risks
• “The Fiscal Cliff” & the upcoming US elections
• Europe
– Is Greece staying or leaving?
– Can Europe find a powerful enough backstop to prevent a spill over to Spain and Italy?
• China
– A “soft”, a “rough” or a “hard” landing? And who will really know?
– What will be the implications for the rest of Asia and Australia?
How much more global policy accommodation will there be?What will be the effects on bond yields and inflation and will it keep growth going?
45
EuropeECB buys time for fiscal adjustment
• The Spanish unemployment rate has risen to 24.4% and Italy’s debt to GDP ratio is now above 120%. In July Spanish 10 year debt yielded over 7% as markets lost confidence in its ability to finance itself.
• The ECB’s Outright Monetary Transactions (OMT) have bought time for Spain and Italy, they may agree to purchase their short dated debt if they enter a bailout program and adhere to its conditionality.
Source: Eurostat, Bloomberg (Sept 2012)
Developed market debt continuesto increase relative to GDP
Creating volatility in vulnerable countries
Italy
Spain
France
JapanGermanyAustraliaBritain
Ireland
Greece
US
0
5
10
15
20
25
30
0 50 100 150 200 250Debt to GDP %
Unemp %
3
4
5
6
7
8
Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12 Sep-12
(%)
Italy Spain
46
EuropeGerman GDP highly correlated to Eurozone
• European politicians have begun to reduce the pace at which austere, fiscal deficit reduction is implemented. Such austerity has accelerated the pace at which Europe has entered recession.
• Overall Eurozone GDP declined by 0.2% in Q2 2012. With German exports making up over a third of their economy the Eurozone slowdown is having a major impact on its largest economy.
Source: IFO, Markit, Bloomberg (Sept 2012)
German GDP is following its major export partners lower…
…with manufacturing PMIs entering recessionary territory
30
35
40
45
50
55
60
65
Aug-07 Feb-09 Aug-10 Feb-1275
80
85
90
95
100
105
110
115
German Manufacturing PMI IFO Business Expectations
-8
-6
-4
-2
0
2
4
6
Sep-05 Sep-07 Sep-09 Sep-11
(%)
Germany Italy Spain
47
United States
• Job creation has slowed down after a strong start of the year. • Consumers remain cautious.• Uncertainties surrounding the fiscal cliff are high.
Source: US Department of Labor Statistics, Bureau of Economic Analysis, US Census Bureau ,Bloomberg (Dec 2008 to September 2012)
Job growth is slowingUS Payrolls and Unemployment Rate
Consumer spending remains mutedEarnings, Income and Retail Sales
-8-6-4-202468
Dec-08 Oct-09 Aug-10 Jun-11 Apr-12-15
-10
-5
0
5
10
Average Hourly Earnings % yoy LHSPersonal income % yoy LHSRetail Sales % yoy RHS
-900
-600
-300
0
300
600
900
Dec-08 Dec-09 Dec-10 Dec-117.0
7.5
8.0
8.5
9.0
9.5
10.0
Non Farm Payrolls LHS x 1000Initial Jobless Claims x 1000 LHSUnemployment rate % RHS
48
United States
• House prices and home sales continue to pick up due to low mortgage rates. Housing affordability is at multi year highs.
• Inflation continues to moderate despite an increase in commodity prices. Wage costs remain subdued. The Fed has increased its policy accommodation by announcing unlimited purchases of mortgage backed securities.
Source: US National Association of Realtors, Case Schiller,Bureau of Labor Statistics, AAA, Bloomberg (Dec 2008 to September 2012)
The housing market continues to recoverNew Home Sales and House Prices
Inflation remains on a downward trendHeadline and Core CPI with Average price of Gasoline $/gallon
-150
-100
-50
0
50
100
150
Dec-08 Sep-09 Jun-10 Mar-11 Dec-11
Case Schiller House Price Index % change 3mths annualised
New Home Sales % yoy
Existing Home Sales % yoy
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Dec-08 Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Jun-121.5
2.0
2.5
3.0
3.5
4.0
4.5
CPI %yoy LHS
CPI Core % yoy LHS
Ave. Gasoline price US$ RHS
49
China
• The growth of China industrial production has fallen steadily for twelve months since the 2H2011. In August, the National Bureau of Statistics reported 8.9% growth of industrial production year-on-year (y-o-y), the slowest pace in three years. The data underscore risks that the full-year growth will slide to its lowest in two decades.
• Despite the slowed down of the world second-biggest economy, the growth of retails sales still maintained at the levels above 13% y-o-y since the beginning of this year. The market expects the internal demands will remain robust and thus partly offset the contradiction in external demands.
Source: US National Association of Realtors, Case Schiller,Bureau of Labor Statistics, AAA, Bloomberg (Dec 2008 to September 2012)
Industrial production growth plunged to single digit for a fifth month
Retail sales slowed down but still grew at double digit
5
7
9
11
13
15
17
Feb-11 May-11 Aug-11 Nov-11 Feb-12 May-12 Aug-12
(%)
10
12
14
16
18
20
22
Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12
(%)
50
Appendix
51
Bawag Global High Yield Bond FundPortfolio Composition
Source: Barings 22 October 2012
POLAND (Local), 1.1%
BRAZIL, 4.7%
TURKEY, 5.6%
PHILIPPINES, 4.7%
MEXICO, 5.9%
BULGARIA, 2.9%
INDONESIA, 3.8%
PERU, 6.0%
US & Euro High Yield
49.7%
Emerging Market Debt
34.6%Investment
Grade & Cash15.8%
Emerging Market Debt
High Yield Corporates
Services, 6.9
Telecoms, 4.1Healthcare, 3.8
Consumer Cyc, 3.1
Tech, 2.9
Media, 2.5
Capital Goods, 2.1
Other, 5.7
Basic Industry, 11.4
Energy, 7.1
Investment Grade
Fund Size: €180.3 millionDuration: 5.1 years
Cash, 13.2
Services, 0.9Energy, 1.7
Source: Barings 22 October 2012
52
Performance of Bawag High Yield Bond Fund30th September 2012
Source: Barings, Gross of Fees as at 30 September 2012* Inception date: 30 November 2000
6.0
13.6
18.7
11.4 11.5
9.3
0
5
10
15
20
Q3 2012 YTD 2012 1 Year 3 years (ann.) 5 years (ann.) SI (ann.) *
(%)
53
Investment Professionals
Ece Ugurtas, CFA
Head of Credit Portfolio Construction GroupFixed Income Investment ManagerLocation: LondonInvestment Experience: 14 Years
Ece chairs the Credit Portfolio Construction Group and is responsible for Global High Yield portfolios. Ece is the manager of the Baring High Yield Bond Fund and a member of the Scenario Team. Ece joined Baring Asset Management as a Fund Manager in 2003. Previously she worked at M&G Investment Management as a Director of Fixed Interest Portfolio Management, managing gilt portfolios and emerging market debt funds. Ece has an MSc in Economics from the London School of Economics and a BSc in Economics and Politics from Bristol University. She was awarded the CFA designation in 2000. Ece speaks Turkish and German fluently.
Last updated: 4 January 2012
Sunita Kara, CFA
Fixed Income Investment Manager
Location: LondonInvestment Experience: 11 Years
Sunita is an Investment Manager and member of the Credit Portfolio Construction Group. She is the manager of the Baring Asset Management Corporate Bond Fund and also a member of the Risk Group, which is a sub-group of the SPG, the research body responsible for asset allocation. Sunita joined Barings in 2007 and prior to being appointed to her current position, undertook various research responsibilities in credit and emerging market debt markets in both local and hard currency. Prior to Barings, Sunita worked for 5 years at Standard & Poor's Ratings Services as a Senior Credit Analyst with research responsibilities for a portfolio of corporates. She began her career as an economic analyst at HM Treasury. Sunita holds a first class BSc (Hons) in Economics from Brunel University in London and was awarded the CFA designation in 2006.
Last updated: 4 January 2012
54
Baring High Yield Bond FundShare Class Overview
Fund Share Class ISIN Code
Annual Management
ChargeBaring High Yield Bond Fund Class A USD Inc IE0000835953 1,00%
Baring High Yield Bond Fund Class A USD Inc Monthly Dividend IE0032158457 1,00%
Baring High Yield Bond Fund Class A USD Acc IE00B6TMN219 1,00%
Baring High Yield Bond Fund Class A EUR Inc IE0004851808 1,00%
Baring High Yield Bond Fund Class A EUR Hedged Inc IE0032158341 1,00%
Baring High Yield Bond Fund Class A GBP Hedged Inc IE0033156484 1,00%
Baring High Yield Bond Fund Class A HKD Inc Monthly Dividend IE00B62P4Q86 1,00%
Baring High Yield Bond Fund Class A AUD Hedged Inc Monthly Dividend IE00B881PF08 1,00%
Baring High Yield Bond Fund Class A CAD Hedged Inc Monthly Dividend IE00B7YBBB53 1,00%
Baring High Yield Bond Fund Class A NZD Hedged Inc Monthly Dividend IE00B8GQ7V76 1,00%
Baring High Yield Bond Fund Class I USD Acc IE00B3L6P808 0,75%
Baring High Yield Bond Fund Class I EUR Acc IE00B3L6P915 0,75%
Baring High Yield Bond Fund Class I GBP Hedged Inc IE00B3L6PB37 0,75%
55
European Distribution Contacts
Head of Sales Europe and Middle EastOliver Morath
Tel: +49 69 7169 1810Email: [email protected]
France and Belgium:Benoit du Mesnil du Buisson+33 (0)1 53 93 60 00Email: [email protected]
Germany and Austria: Martin Dilg+49 (0)69 7169-1824Email: [email protected]
Luxembourg and Switzerland: Thomas Justen+49 (0)69 7169-1826Email: [email protected]
UK, Ireland, Spain and Channel Islands:Rod Aldridge+44 (0) 20 7214 1005Email: [email protected]
Middle EastNisarg Trivedi+971 4 4019220 Email: [email protected]
Nordic RegionChristine Bergstedt+44 (0)20 7214 1283 Email: [email protected]
56
Important Information
For Professional Investors/Advisers only. It should not be distributed to or relied on by Retail Investors. This document is approved and issued by Baring Asset Management Limited, authorised and regulated by the Financial Services Authority and in jurisdictions other than the UK it is provided by the appropriate Baring Asset Management company/affiliate whose name(s) and contact details are specified herein. The information in this document does not constitute investment, tax, legal or other advice or recommendation. It is not an invitation to subscribe and is for information only. Investment involves risk. The value of any investments and any income generated may go down as well as up and is not guaranteed. Past performance is not a guide to future performance. Where yields have been quoted they are not guaranteed. Changes in rates of exchange may have an adverse effect on the value, price or income of an investment. There are additional risks associated with investments (made directly or through investment vehicles which invest) in emerging or developing markets. Investments in higher yielding bonds issued by borrowers with lower credit ratings may result in a greater risk of default and have a negative impact on income and capital value. Income payments may constitute a return of capital in whole or in part. Income may be achieved by foregoing future capital growth. We reasonably believe that the information contained herein from 3rd party sources, as quoted, is accurate as at the date of publication. The information and any opinions expressed herein may change at any time. Companies and employees of the Baring Asset Management group may hold positions in the investment(s) concerned. This document may include internal portfolio construction guidelines. As guidelines the fund is not required to and may not always be within these limits. These guidelines are subject to change without prior notice and are provided for information purposes only.This document may include forward looking statements which are based on our current opinions, expectations and projections. We undertake no obligation to update or revise any forward looking statements. Actual results could differ materially from those anticipated in the forward looking statements.This document must not be used, or relied on, for purposes of any investment decisions. Before investing in any product, we recommend that appropriate financial advice should be sought. The Key Investor Information Document (KIID) must be received and read. All other relevant documents relating to the product such as the Report and Accounts and Prospectus should also be read. Compensation arrangements under the Financial Services and Markets Act 2000 of the United Kingdom will not be available in respect to any Offshore Fund.
Research MaterialBaring Asset Management only produces research for its own internal use. Where details of research are provided in this document it is provided as an example of research undertaken by Baring Asset Management and must not be used, or relied upon, for the purposes of any investment decisions. The information and opinions expressed herein may change at anytime.Lists of locations, or location indicators on maps, are non-exhaustive. They may include locations where Barings has an office and/or where Barings has appointed a local organisation or individual to act on its behalf for certain aspects of its business.For data sourced from Morningstar: © Morningstar, Inc. all rights reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information.An S&P Fund Management Rating represents an opinion only and should not be relied on when making an investment decision. “S&P” and “Standard & Poor’s” are trademarks of The McGraw-Hill Companies, Inc. Copyright 2010 © Standard & Poor’s Financial Services LLC.
Version 08/SD
Complied: London – October 2012 (v250)
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