Post on 22-Nov-2014
description
This is not a consumer advertisement. It is intended for UK professional financial advisers and should not be relied upon by private customers or any other persons
Legal & General European Absolute Fund
Citywire Absolute Return Forum
Gavin Launder – Senior Portfolio Manager
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Gavin Launder, manager of the Legal & General European Absolute Fund, discusses
the opportunities available in European equities, the methodology behind the strategy and discusses the diversification benefits of Absolute Return strategies in a balanced investment portfolio.
3
A Formula for Success in Absolute Return
Opportunity Set
LGIM Resources
ProcessMacro themes
Regulation
Supply & demand balance
Country & sector
Stocks
Management
Operational gearing
Cash flow returns
Screening
Stocks Macro themes
Regulation
Supply & demand balance
Country & sector
Stocks
Macro themes
Regulation
Supply & demand balance
Country & sector
Stocks
Management
Operational gearing
Cash flow returns
Screening
Stocks
Management
Operational gearing
Cash flow returns
Screening
Stocks
Performance42.5
44.5
46.5
48.5
50.5
52.5
54.5
56.5
Feb-2010 Apr-2010 May-2010 J ul-2010 Sep-2010 Oct-2010 Dec-2010 Feb-2011-15%
-12%
-9%
-6%
-3%
0%
3%
6%
9%
12%
15%
Fund NAV (LHS) FTSE World Europe ex UK (RHS)
Skills
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1. Who we are
Gavin Launder Ian King
Working together since May, 2007
1 2 3 4 5
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1. Our Skills
An aggregate of fifteen years managing absolute return strategies
Experience of:
– shorting successfully
–managing net exposure
–managing gross exposure
– using derivatives, long and short
We’ve done this before
1 2 3 4 5
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2. The Opportunity Set
• Europe is a fertile hunting ground for Absolute Return strategies
• Fifteen countries, fifteen governments, five currencies
• A range of regulatory and fiscal regimes
A broad range of long and short opportunities
1 2 3 4 5
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3. LGIM Resources - an Integrated Platform
Central DealingExecution
CashManageme
ntEnhanced Returns
ProductSpecialist
Dedicated Communication
RiskManageme
ntIndependent
Oversight
MacroDesk
Countries Sectors
StockPicks
Gavin LaunderIan King
David Shaw
Portfolio
1 2 3 4 5
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4. Process - Bottom-up and Top-down
Top down research
Driving the net
Macro themes
Regulation
Supply & demand balance
Country & sector
Stocks
Bottom up research
Driving the gross
Management
Operational gearing
Cash flow returns
Screening
Stocks
Active management of the net and gross exposure
1 2 3 4 5
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0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 J an-11 Feb-11 Mar-11
SKY DEUTSCHLAND
Bought
Sold
Bought
4. A Long - Sky Deutschland1 2 3 4 5
€
Source: Datastream 03/03/2011
10
50
60
70
80
90
100
110
120
130
140
J ul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 J an-11 Feb-11 Mar-11
VOLKSWAGEN PREF.
SoldBought
Bought
Bought
Sold
4. Another Long - Volkswagen1 2 3 4 5
€
Source: Datastream 03/03/2011
11
3.5
4.0
4.5
5.0
5.5
6.0
Apr-10 J un-10 Aug-10 Oct-10 Dec-10 Feb-11
Banco Popular
Bought back
Bought back
Sold short
Sold shortSold short
Bought back
4. A Short - Banco Popular1 2 3 4 5
€
Source: Datastream 03/03/2011
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4. Process – The Golden Rules of Shorting What we have learnt managing Absolute Return
• It is not just the opposite of a long
• Do not short purely on valuation
• Avoid take-over candidates
• Shorts don’t stay short forever
1 2 3 4 5
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42.5
44.5
46.5
48.5
50.5
52.5
54.5
56.5
Feb-2010 Apr-2010 May-2010 J ul-2010 Sep-2010 Oct-2010 Dec-2010 Feb-2011
-15%
-12%
-9%
-6%
-3%
0%
3%
6%
9%
12%
15%
Fund NAV (LHS) FTSE World Europe ex UK (RHS)
5. Performance since inception Relative to the reference market
1 2 3 4 5
Source: Bloomberg, Legal & General, 22/10/2010 – 08/03/2011.
Please remember that past performance is not a guide to future performance.
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5. Performance since inception Relative to the IMA sector
-2.00
0.00
2.00
4.00
6.00
8.00
10.00
Feb-10 Apr-10 J un-10 Aug-10 Oct-10 Dec-10 Feb-11
IMA Absolute Return Sector L&G European Absolute Fund
1 2 3 4 5
Source: Financial Express, 19/02/2010 – 07/03/2011.
Please remember that past performance is not a guide to future performance.
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5. Performance since inception Risk/return relative to peers
Gartmore
BlackrockIgnis
Liontrust
L&G European Absolute
FundEuroStoxx
0%
3%
6%
9%
12%
0% 5% 10% 15% 20% 25%
Annualised Daily Volatility
Retu
rn (N
et o
f Fee
s)
European Equity Absolute Return Peers
Source: Lipper, 19/02/2010 – 28/02/2011.
European Equity Absolute Return Peers defined as IMA Absolute Return Sector constituents investing primarily in European equities. Past performance is not a guide to future performance.
1 2 3 4 5
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Why
An investment in an absolute return
fund is an investment in a manager
not an asset class
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Absolute return funds a ‘fundamental change’ for Europe’s asset management industry*
*Source: Lipper, Financial Times, March 2011.
The performance of absolute return funds should not be correlated with any other asset class – bonds, equities or cash
Diversification
Currency risk should be hedged, to provide absolute returns in sterling, irrespective of foreign exchange moves
Currency
The volatility taken to achieve the return should be significantly lower than that of the underlying asset class
Volatility
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A Formula for Success in Absolute Return
Opportunity Set
LGIM Resources
ProcessMacro themes
Regulation
Supply & demand balance
Country & sector
Stocks
Management
Operational gearing
Cash flow returns
Screening
Stocks Macro themes
Regulation
Supply & demand balance
Country & sector
Stocks
Macro themes
Regulation
Supply & demand balance
Country & sector
Stocks
Management
Operational gearing
Cash flow returns
Screening
Stocks
Management
Operational gearing
Cash flow returns
Screening
Stocks
Performance42.5
44.5
46.5
48.5
50.5
52.5
54.5
56.5
Feb-2010 Apr-2010 May-2010 J ul-2010 Sep-2010 Oct-2010 Dec-2010 Feb-2011-15%
-12%
-9%
-6%
-3%
0%
3%
6%
9%
12%
15%
Fund NAV (LHS) FTSE World Europe ex UK (RHS)
Skills