David Dyer & Marion le Morhedec Exploiting inflation ....…David Dyer & Marion le Morhedec...
Transcript of David Dyer & Marion le Morhedec Exploiting inflation ....…David Dyer & Marion le Morhedec...
David Dyer & Marion le Morhedec
Exploiting inflation opportunities on a global scaleon a global scale
This presentation is intended for professional advisers only and must not be relied upon by retail clients. Circulation must be restricted accordingly.
AXA WF Global Inflation BondsPerformance
9%
10%AXA WF Global Inflations Bonds I EURMorningstar - Global Inflation-Linked Bond EUR hedged
6 33%
7.52%
7%
8%
9%
1st Quartile
1st Quartile
2nd Quartile6.33% 6.21%
5.93% 6.10%
5.31%
5%
6%
2 12% 2 17%3%
4%
3rd Quartile2.12% 2.17%
1%
2%
0%YTD 1 Year 3 Years 5 Years
1st or 2nd quartile performance over multiple cycles
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Source: AXA IM / Morningstar as at 30/04/2013. Performance is given for the I Acc EUR shareclass net of fees, annualised over 1 year, calculated using offer/close prices. Past results are not necessarily indicative of future performance. No assurances can be made that profits will be achieved or that substantial losses will not be incurred.
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AXA WF Global Inflation BondsPortfolio Overview
Fund size €2 6bn
Key characteristicsAverage rating AA+Fund size €2.6bn
Average maturity 12.47 years
Yield before Indexation -0.70%
Duration 11 31 years
Average rating AA+
Average coupon 1.41%
Cash 1.23%
Number of holdings 79Duration 11.31 years
Duration (Redex) 1.53 years
50%AXA WF Global Inflation bonds Barclays World Inflation All Maturities
Number of holdings 79
30%
40%
10%
20%
0%US UK France Germany Italy Canada Australia Sweden Japan
5 year annualised performance is 6.21%
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Source: AXA IM as at 30/04/2013. Data is unaudited and sourced from our front office portfolio management system. Please note that the yield calculations are based on the portfolio of assets and may NOT be representative of what clients invested in the fund may receive as a distribution yield. Yield figures quoted will vary in the future and are not guaranteed. Performance is presented net of fees for the I Acc EUR shareclass and calculated using offer/close prices. Past results are not necessarily indicative of future performance. No assurances can be made that profits will be achieved or thatsubstantial losses will not be incurred. The fund does not have a reference index; Barclays Capital World Inflation Linked Bonds TR Hedged index, is given as a basis for comparison only.
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An historical look at inflationInflation and debt always come in pairs
Consumer price inflation, y/y%, 11-yr MA15 UK US
10 Napoleonic wars: deficit monetised
Fiscal monetisation during WWI
Fiscal monetisation during WWII
Volcker clamps down onUS War of
5
g on inflationUS Civil War
Independence
0
Fiscal monetisation
-10
-5
1st Industrial Revolution: productivity-led deflation
2nd Industrial Revolution: productivity rebound; gold finds
during Vietnam War; oil shocks
Great Depression
Throughout history, large amounts of debt have been followed by inflation pressures
101750 1775 1800 1825 1850 1875 1900 1925 1950 1975 2000
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Source: AXA IM / Deutsche Bank as at 31/12/2010.
large amounts of debt have been followed by inflation pressures
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Inflation vs deflation debateWhat are the factors driving the sentiment?
Inflationary Deflationary
Currency depreciation Low growth
VAT hikes Weak demand, output gap, p g p
Globalisation Oil/energy weakness
Emerging countries growth High unemployment levelEmerging countries growth High unemployment level
Increase in Inflation expectations Yield increase
Central Banks’ action QE tapering
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How do inflation-linked bonds work?
Fisher equation: (1+NY)=(1+RY)*(1+Inflation Expectations)*(1+Risk Premium)Approximately BE=NY-RY
Risk PremiumB k
N i l
Inflation Expectations
Breakeven Inflation
Nominal Yield
Real Yield Real YieldReal Yield Real Yield
Represents the average rate of inflation expected over the life of the bond
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US & UK Inflation Markets
Real Yields BreakevensUS TIPS Spot vs M-3
UKTI Spot vs M-3
UKTI Spot vs M-3
US TIPS Spot vs M-3
Pension funds keep real rates low in the UK
TIPS l i ld i th b k f F d “t i ” l ti TIPS real yields risen on the back of Fed “tapering” speculation
Breakevens under pressure as a result of lower commodities prices
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Source: AXA IM / Barclays Capital as at 24/05/2013.
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Euro Area
Real Yields Breakevens
F S tF S t MM 33
Italy Spot vsItaly Spot vs MM--33
France Spot vs France Spot vs MM--33
France Spot vsFrance Spot vs MM 33
Italy Spot vsItaly Spot vs MM--33
France Spot vs France Spot vs MM--33
Cheaper commodities and low inflation releases are impacting Euro markets
L i ld i ti l h b d d t d Longer yields, in particular, have been on a downward trend
Breakevens also weakening
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Source: AXA IM / Barclays Capital as at 15/05/2013.
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Emerging Markets Inflation-Linked Bonds
Real Yields Breakevens
IsraelIsrael
TurkeyTurkeySouth AfricaSouth Africa
MexicoMexico
MexicoMexicoIsraelIsrael
TurkeyTurkey
South AfricaSouth Africa
IsraelIsrael
MexicoMexicoSouth AfricaSouth Africa
Currency war talks are back on the menu following the Bank of Japan aggressive actions
EM C t l B k h t t l di t f ll i l i ld EM Central Banks have cut rates, leading to falls in real yields
Rating outlooks diverge with Turkey now Investment Grade and Israel downgraded
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Source: AXA IM / Barclays Capital as at 15/05/2013.
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Inflation forecastsInflation expectations have been depressed by falling commodity prices
5
6 100
3
3,5Market and survey based inflation expectations diverge US Core inflation should remain in the comfort zone
3
4
60
80
2
2,5
3
0
1
2
40
1
1,5
-2
-1
0May-08
Nov-08
May-09
Nov-09
May-10
Nov-10
May-11
Nov-11
May-12
Nov-12
US 10Y BE0
20
99 00 01 02 03 04 05 06 07 08 09 10 11 120
0,5
-3US : Univ of Michigan Consumer Survey 5-10Y Ahead Inflation ExpectationsUS : Headline Inflation
o-99 o-00 o-01 o-02 o-03 o-04 o-05 o-06 o-07 o-08 o-09 o-10 o-11 o-12
USA : ISM Services Prices Paid USA : Core Inflation (RS)
Inflation forecasts have been falling consistently with lower commodity prices Meanwhile, inflation expectations from surveys remain stable at long term equilibrium / target
levels However, over the next 12 months we see very little risk to core inflation which is the most
relevant inflation metric
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relevant inflation metric. Source: AXA IM / Bloomberg as at 15/05/2013.
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Looking for value?
UK
4
Central Banks inflation targets are moving up, still BEs trade below average inflation levels
USA3
3
3,5
2,52,5
3
10Y Average RPI
UK 10Y BE
2
2May-03 May-05 May-07 May-09 May-11 May-13
€ Area2,5
1,5Aug-05 Aug-07 Aug-09 Aug-11
US 10Y BEUS 10Y Average CPI
2
Falling commodity prices have pushed inflation expectations below past averages.1
1,5
7Y Average € Area HICPx Bund€i 10Y BE
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inflation expectations below past averages.Source : AXA IM / Bloomberg as at 15/05/2013.
Apr-10 Oct-10 Apr-11 Oct-11 Apr-12 Oct-12 Apr-13
11
The markets have a low forecasting power for inflation
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The current level of inflation b k f t t
TUR
SAF BRA
5
6 breakeven from country to country is highly correlated to the current year inflation forecastke
ven
MEX
4 As we focus on 10 year breakevens, this suggests that their forecasting powerfla
tion
Bre
ak
AUS
GER
UK
USA THASKO
POL
ISR
MEX
COLCHI
2
3 that their forecasting power is rather limited
Another conclusion should nt 1
0 Ye
ar In
f
JAP
CANSWEITA
FRA
GER POL
1
be that short term inflation moves are a significant driver of markets’ inflation expectations
Cur
ren
- - 2 4 6 8
p
IMF 2013 Inflation Forecast
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Source : AXA IM / Bloomberg as at 15/05/2013. Yield figures quoted will vary in the future and are not guaranteed.
Growing economies still offer positive real yields
Real interest rates and sovereign Real interest rates and sovereign debt appears to be well correlated
In some countries, like the UK & the USA l i t t t td USA, real interest rates appear to be fundamentally “too low”
– This is most likely the consequence of Quantitative Easing programmesea
r Rea
l Yie
ld
g p g
In Emerging Markets space countries that are less accessible to foreigners or with higher taxes haveur
rent
10
Ye
%
foreigners or with higher taxes have higher interest rates
C
IMF 2016 Debt / GDP Forecast
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Source : AXA IM / Bloomberg / IMF as at 15/05/2013. Yield figures quoted will vary in the future and are not guaranteed.
India issuing an inflation-linked bond today
1994
Inflation-linked bonds is a $ 2.3Trn market of which more than $ 500Bn are outside AXA WF Global Inflation Bonds investment universe
1991 19812006
1994
1964
2012
1991
19971998
1981
20042004
2004
1964
2007
2011
2004
20071996
1955 2013
1984
1964
1967
2002
Developed Countries
Emerging Countries
1984
1966 20021995
20022002
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Source: AXA IM / Barclays as at 31/12/2012.
Taking advantage of our Inflation-linked bonds offering
Long term exposure to real yields & realised inflation
Long term exposure to real yields & realised inflation
Exposure on real yields & inflation breakevensExposure on real yields & inflation breakevens
Tactical exposure on inflation expectationsTactical exposure on inflation expectations
GlobalGlobal European / UKEuropean / UK UniversalUniversal REDEXREDEX
Opportunity to protect Attractive for investors Optimised GDP weighting, Share class designed to pp y pthe fixed income part of an asset allocation
wanting single currency exposure.
p g g,blending Emerging and
Developed Markets. Designed to perform in a
low rates environment
greduce exposure to
duration. Consider mixing with standard share class to build desired durationlow rates environment to build desired duration
AXA WF Euro AXA WF Global InflationAXA WF Global Inflation Bonds
AXA WF Euro Inflation Bonds AXA WF Universal
Inflation Bonds
AXA WF Global Inflation Bonds REDEX
AXA WF Euro Inflation Bonds REDEX
AXA Sterling Index Linked Bond Fund
Investors can take advantage of our diversified offering by mixing our available funds & share classesto achieve their desired positioning.
REDEX & Universal are two different approaches as yields HAVE to rise for REDEX to perform
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REDEX & Universal are two different approaches as yields HAVE to rise for REDEX to perform.AXA WF Euro Inflation Bonds is not registered for retail distribution in the UK.
AXA WF Universal Inflation BondsPortfolio Overview
F d i $160 A ti AA
Key Characteristics
Fund size $160m
Average maturity 5.15 years
Real yield -0 47
Average rating AA
Average coupon 2.10%
Cash 0 6%Real yield 0.47
Duration 4.81 years
Cash 0.6%
Number of holdings 72
Fund breakdown by country Contribution to duration by country
%
Performance since inception 7 15%
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Performance since inception 7.15%Source: AXA IM as at 30/04/2013. Data is unaudited and sourced from our front office portfolio management system. Please note that the yield calculations are based on the portfolio of assets and may NOT be representative of what clients invested in the fund may receive as a distribution yield. Yield figures quoted will vary in the future and are not guaranteed. Performance is presented nets of fees for the I Acc USD shareclass since its launch in July 2012,and is calculated using offer/close prices. Past results are not necessarily indicative of future performance. No assurances can be made that profits will be achieved or that substantial losses will not be incurred.
Our inflation-linked credentials
Three dedicated inflation specialists, based in London & Paris, with over 25 years Team p , , yexperience as a firm managing inflation-linked assets
£20 5bn in inflation linked assets under management globally; significant size ensures “Tier
Team
£20.5bn in inflation-linked assets under management globally; significant size ensures Tier 1” status with counterparties and access to policy makers & official market participants
Diverse client base across all marketScale
A long and successful track record
1st quartile performance 3 & 5 years for our flagship AXA WF Global Inflation Bonds*Performance
Market leaders in terms of inflation-linked product development, with the creation and launch of the “Redex” share class in 2010, which lowers exposure to the risk of nominal interest rate changes and the launch of AXA WF Universal Inflation Bonds in 2012
Innovationinterest rate changes and the launch of AXA WF Universal Inflation Bonds in 2012
We are a major player in the inflation-linked market
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Source: AXA IM / Morningstar at 30/04/2013. *Morningstar Global Inflation-Linked Bonds - EUR hedged offshore universe as at 30/04/2013. Past performance is not a guide to future returns.
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Disclaimer
This presentation is intended for Professional Advisers only and should not be relied upon by retail clients. Circulation must be restricted accordingly. Any reproduction of this information, in whole or in part, is prohibited.
This presentation does not constitute an offer to sell or buy any units in the Fund(s) Information relating to investments may have been based on research and analysis undertaken or procured byThis presentation does not constitute an offer to sell or buy any units in the Fund(s). Information relating to investments may have been based on research and analysis undertaken or procured by AXA Investment Managers UK Limited for its own purposes and may have been made available to other expertises within the AXA Investment Managers group of companies who in turn may have acted upon it. Whilst every care is taken over these comments, no responsibility is accepted for errors omissions that may be contained therein. It is therefore not to be taken as a recommendation to enter into any investment transactions. Information in this document may be updated from time to time and may vary from previous or future published versions of the document.
This presentation should not be regarded as an offer, solicitation, invitation or recommendation to subscribe for any AXA IM investment service or product and is being provided for informational purposes only. The views expressed do not constitute investment advice and do not necessarily represent the views of any company within the AXA Investment Managers Group and may be subject to change without notice. No representation or warranty (including liability towards third parties), express or implied, is made as to the accuracy, reliability or completeness of the information contained herein.
Past performance is not a guide to future performance. The value of investments and the income from them can fluctuate and investors may not get back the amount originally invested. Changes in exchange rates will affect the value of investments made overseas. Fixed income securities are subject to interest rate risk, credit risk, prepayment risk and market risk. High yield securities are subject to a greater risk of loss of principal and interests than higher-rated, investment grade fixed income securities. Investments in newer markets and smaller companies offer the possibility of higher returns but may also involve a higher degree of risk. An initial charge is usually made when you purchase units. Investors in offshore vehicles advised or sub-advised in whole or in part byhigher returns but may also involve a higher degree of risk. An initial charge is usually made when you purchase units. Investors in offshore vehicles advised or sub advised in whole or in part by AXA Investment Managers Group employing the investment strategy described herein may be subject to currencies exchange risk. There is no guarantee that the objectives of the investment strategy described herein will be achieved. Your investment should be for the medium to long term i.e. typically 5-10 years.
AXA WF Universal Inflation Bonds, AXA WF Global Inflation Bonds and AXA WF Euro Inflation Bonds are sub-funds of AXA World Funds, which is a SICAV fund registered for public distribution in Luxembourg. All of these sub-funds are recognized by the UK Financial Conduct Authority and are available for sale to the public in the UK. The AXA WF Euro Inflation Bonds is a sub-fund of AXA World Funds, a SICAV fund domiciled in Luxembourg. However, this sub-fund is not recognised by the UK Financial Conduct Authority and is therefore not able to be marketed to retail investors in the UK A SICAV is a type of open ended investment fund in which the amount of capital in the fund varies according to the number of investors similar to a UK ICVC SICAV funds are some of thethe UK. A SICAV is a type of open-ended investment fund in which the amount of capital in the fund varies according to the number of investors, similar to a UK ICVC. SICAV funds are some of the most common investment vehicles in Europe. There may be tax implications for a UK investor investing in the Fund and tax advice should be obtained before an investment is made.
Before investing, you should read the prospectus, which includes investment risks relating to these funds. The information contained herein is not a substitute for independent advice.
AXA Fixed Income is an expertise of AXA Investment Managers UK Limited. Issued by AXA Investment Managers UK Limited, which is authorized and regulated by the Financial Conduct Authority in the UK Registered in England and Wales No: 01431068 Registered Office: 7 Newgate Street London EC1A 7NX Telephone calls may be recorded for quality assurance purposes 16890in the UK. Registered in England and Wales No: 01431068. Registered Office: 7 Newgate Street, London EC1A 7NX. Telephone calls may be recorded for quality assurance purposes. 16890 06/2013
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