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Transcript of Signature Global Advisors Eric Bushell, Chief Investment Officer Geof Marshall, Portfolio Manager...
Signature Global AdvisorsEric Bushell, Chief Investment Officer
Geof Marshall, Portfolio ManagerGlobal Investing from a
Canadian Perspective
Signature overview
Facts• Global investment team based in Canada• 33 person investment team – one of the largest in Canada• Core investment style, with diversified portfolios of large cap securities • Specialize in broad flexible mandates • $35 billion in AUM – ample scale to compete for talent, research and trading
1 As at June 30, 2010
*Cash & cash equivalents: commercial paper, floating rates, bonds (in money market) and government (in money market)
Deep, specialized investment team
Shawna McIntee (7) Aldo Sunseri (26) Connie Lee (10)
Ryan Fitzgerald, CFA (7)
Stephane Champagne (16)
TRADING PROFESSIONALS
ERIC BUSHELL, CFA (18)
Sara Shahram, CFA (9)
Income Trusts/REITS
Health Care
Goshen Benzaquen (10)
Energy & MaterialsScott Vali, CFA (15)
CHIEF INVESTMENT OFFICER
Drummond Brodeur, CFA (22) Matthew Strauss, CFA (17)
GLOBAL INVESTMENT STRATEGISTS
Eric Bushell, CFA (18)
Rui Cardoso, CFA (14)
Joshua Varghese (1)
Aero, Auto, Defence, UtilitiesMassimo Bonansinga, M.B.A. (21)
Gorlen Zhou (2)
Consumer
Henry Kwok (11)
Hoa Hong, CFA (10)
Tech, Media, TelecomMalcolm White, CFA (16)Jeremy Yeung, CFA (10)
John Hadwen, CFA (18)Financials
Industrials, TransportJoe D'Angelo, CFA (14)
Yvonne Lau, CFA (9)
High YieldGeof Marshall, CFA (15)
Kevin McSweeney, CFA (11)Brad Benson, M.A. (13)Carlton Ling, CFA (8)
Investment GradeJohn Shaw, CFA (21)Paul Simon, CFA (10)
Leanne Ongaro, CFA (4)Jonathan Chew (1)
GLOBAL SECTOR/ ASSET CLASS SPECIALISTS
Derek Tucker, CFA (11)Shelly Ghai, M.B.A. (7)
Rates and Foreign Exchange
Matthew Strauss, CFA (17)
Eric Bushell, CFA (18)
Darren Arrowsmith, CFA (12)
Paul Simon, CFA (10)
PreferredsJohn Shaw, CFA (21)
Global Road Map
Will the private sector bite?
Developed markets: Running out of policy bullets
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
600
700
800
900
1000
1100
1200
1300
1400
1500
1600
US Economic Surprise Index (Actual vs Expected Data)
S&P 500
US
FiscalC.Bank QE1 TwistQE2 QE3
400 pt drop in Fed funds
OMTLTRO Europe Fiscal
C.Bank
A non-deflationary deleveraging recipe
Add ingredients in equal measure
• Debt paydown
• Default
• Positive growth
• Inflation
Apply low interest rates to support asset prices. Ensure banks and credit markets function. Stir for 7-10 years.
Deleveraging and the economy
Government sector
balance sheet
Household sector
balance sheet
Corporate sector
balance sheet
Deleveraging delayed
Deleveraging ending
Deleveraging completed
Bottom line: Private sector deleveraging began in 2008 and has been the key reason why the U.S. recovery has been so weak over the past couple of years.
We are now approaching the end of the deleveraging cycle.
Banking sector
balance sheet
Deleveraging ending
Financial repression
Bernanke
Financial repression
Do not ignore valuations
Source: TD Securities
Income trust redux
Financial repression:
negative real rates
High payoutfinancial
structures
Cost of capitaladvantage forhigh payout
model
Accretive acquisitions& earnings
growth
Dilemma: convert or be
left behind
Capital flows
• Massive inflows?
• Sell-side justification of valuations?
• New products?
• Hard for fundamentals to get any better?
• Spread compression between ratings?
• Increased leverage and credit risk?
The progression of the yield trade – technical indicators
Income opportunities – caution
Income opportunities – caution
The progression on the yield trade – structural changes
Signature flexibility
• Continue to invest in good, risk-adjusted securities
• Continue to invest in securities and asset classes set to benefit from deleveraging
• Will not simply invest in higher-yielding, higher-risk securities that have not yet run up in price
• Seek maximum diversification and remain cautious of common themes that can creep into portfolios
• Take full advantage of fund flexibility to manage downside risk
Signature positioning
Cash & gold
• Cautionary holdings; overweight
Government bonds
• Negative real returns; underweight
Investment-grade bonds
• Specific opportunities; market weight
High-yield bonds
• Still finding value; overweight
Equities
• Strong, less economically sensitive, quality; slight underweight
Signature Diversified Yield
Portfolio Snapshot, as at Sept. 30, 2012
Signature Solutions
Source: “PalTrack”, as at Sep. 30, 2012
Conclusion
• Policy actions will continue to dominate markets
• Real interest rates will be low or negative for some time
• Financial repression changes the rules for investors
• Canadian investors need to be positioned to take advantage of global trends
• Global yield story has legs
• Signature has the personnel, process, and solutions to gives investors a real advantage in uncertain market
Signature team awards
Eric Bushell, Chief Investment Officer, Signature Global Advisors
Morningstar Equity Manager of the Year, 2009Morningstar Fund Manager of the Decade, 2010
• Signature High Income Fund – Best Canadian income trust fund, 2004, Best Global Balanced 2010, 2011
• Signature Canadian Balanced Fund – Best Canadian balanced fund, 2007, 2009
• Signature Canadian Resource Fund – Best natural resource equity fund, 2008, 2009
• Signature Dividend Fund – Best dividend fund, 2001, 2002, 2009
• Signature Income & Growth Fund – Best global balanced fund, 2008
• Signature Select Canadian Fund – Best Canadian equity fund, 2001
Thank youAll charts and illustrations in this guide are for illustrative purposes only. They are not intended to predict or project investment results.
®CI Investments, the CI Investments design and Signature Global Advisors are registered trademarks of CI Investments Inc. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise indicated and except for returns for periods less than one year, the indicated rates of return are the historical annual compounded total returns including changes in security value. All performance data assume reinvestment of all distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.
Premier resort operator on the Las Vegas Strip with such properties as Bellagio, Mirage, MGM Grand as well as joint ventures CityCenter and MGM Macau.
B3/B- rated US$8.625% bonds due 2/1/2019 and numerous secured bonds rated Ba2/B+
Aggressive balance sheet expansion prior to 2008 left MGM exposed during the credit crisis. A rebound in visitation, borrowing on a secured basis against ‘trophy’ assets and dividends from Macau allowed for the refinancing of near-term maturities and ongoing debt reduction.
Value in top tier assets – MGM Resorts: 6.7%
Income opportunities – high yield bonds
Bellagio, Las Vegas
Yield as of October 17, 2012
Leading supplier of highly-engineered components to the global automotive and industrial sectors. Debt levels increased substantially when the company tendered for shares in tire manufacturer Continental AG in September 2008.
Ba3/B+ rated US$8.5% bonds due 2/15/2019
European banks were no longer willing or able to refinance the company’s debt, forcing them into the public bond market; particularly the deep U.S. dollar high yield market. More opportunities like this to follow as the European banking sector shrinks.
The Schaeffler Group – European borrower in U.S. dollars: 5.4%
Income opportunities – high yield bonds
Schaeffler’s slimline spur gear differential
Yield as of October 17, 2012
Largest Canadian provider of broadband Internet access to rural households using satellites and terrestial towers.
Un-rated C$9% cash coupon and 4% PIK senior secured bonds due 5/15/2017 with warrants
Un-served market is 2.5mm households with only ~6% penetration so far compared to ~85% in urban/suburban regions. Projected growth should enable quick deleveraging with government subsidies accelerating business model de-risking.
LTV = 60% on subscribers and spectrum.
Barret xPlornet – high yield bonds in Canadian dollars: 9.5%
Income opportunities – high yield bonds
Yield as of October 17, 2012
Gecina
Metrovacesa Former insiders Public
27% 31% 42%
Spanish banks
96% Loans
Louis Vuitton French headquarters, Paris
Class A Paris office and apartments,leveraged at 40% LTV by YE 2012
Dividend yield well covered at 5.25% andcompany un-surfacing value through apartment sales and share buybacks
Trades at approximately 25% discount to liquidation value
Select buying opportunities in restructuring plays – Gecina 5.7%
Income opportunities – caution in Europe
Yield as of October 17, 2012
West Coast specialist consolidating assets in top markets such as San Francisco and L.A.
Small market cap ($9000m) which means that acquisition and development strategy can dramatically increase cash flow per share.
Valuation: valuation trades in line with peer group despite the exposure to superior markets and far better growth prospects. Low dividend yield of 2.5% but set to grow in coming years.
Sunset Bronson Studios, Hollywood CA
Income opportunities – real estate
Value in unique assets – Hudson Pacific Properties: 2.8%
Yield as of October 17, 2012
Irreplaceable asset that requires little capital expenditures and spins off a tremendous amount of free cash flow.
Cash flows have proved very resilient to both weather and recession.
Spun out of IntraWest which was taken private by Fortress in a disastrous top-of-the-market deal in 2006.
Valuation: 9x 2013 EBITDA. 8% dividend yield and substantial potential for capital gains.
Peak to Peak Gondola, Whistler Blackcomb, B.C.
Income opportunities – real estate
Value in irreplaceable assets – Whistler Blackcomb: 8.5%
Yield as of September 5, 2012
San Cristobal Tunnel, Santiago, Chile
San Cristobal Tunnel completed in 2008. and operated by Spanish firm ACS and German firm Hochtief. ACS is highly-levered. At the beginning of 2011 they faced €12B in 2012 debt maturities against a market cap of €11B.
ACS began selling assets in 2011, starting with Latin American infrastructure assets. Brookfield Asset Management buys a stake in the Vespicio toll road as well as the San Cristobal tunnel for $291mm.
Conclusion – European deleveraging will create global opportunities for capital providers for years to come.
Latin American infrastructure on sale
Income opportunities – caution in Europe
Thank you
Canada’s Investment Company