The Corporate Bond Market Chair: Julian Parker, Chartered FCSI, President, CISI Guernsey Branch
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Transcript of The Corporate Bond Market Chair: Julian Parker, Chartered FCSI, President, CISI Guernsey Branch
The Corporate Bond MarketChair: Julian Parker, Chartered FCSI, President, CISI Guernsey BranchSpeaker: Kevin Telfer, Fixed Income Product Specialist, Kames Capital
16 January 2013
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Fixed income update
January 2013Kevin Telfer – Fixed Income Product Specialist
• Kevin Telfer – Fixed Income Product Specialist
Kevin is a fixed income product specialist and is responsible for liaising with clients, consultants and financial advisers. He joined us in 2006 from Aon Consulting where he was an investment consultant, and has 16 years’ industry experience. Kevin studied Actuarial Mathematics and Statistics at Heriot Watt University name and is a Fellow of the Institute and Faculty of Actuaries.
• Richard McGrail – Business Development Manager
Richard joined Kames Capital in 2007 as a Business Development Manager for the North of England, Scotland and Ireland. His role encompasses developing relationships with Wealth Managers and key regional IFA clients. Prior to this, Richard spent three years with Aviva successfully developing key business relationships with national and regional clients. Richard has over 13 years experience in the financial services industry and is AFPC qualified.
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• Specialist investment management business
• 271 employees, including 85 investment professionals in Edinburgh, London and the Netherlands
• Funds under management of £52 billion*
• Expertise in four principal areas: fixed income, equities, properties and multi-asset
• Clients in the UK, Europe and Asia• Wholly-owned subsidiary of AEGON
NV, one of the world’s leading financial services businesses
Introducing Kames Capital
Source: Kames Capital as at 31 December 2012. *As at 30 September 2012
Our investment capabilities
Fixed income Equities
Property Multi-asset
Our clients
• Corporate pension funds• Public funds• Financial institutions• Charities/foundations• Wealth managers• Financial advisers
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Liquidity – what the fund managers are saying
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“daily volumes are on a par with where they were in 2007”
Richard Woolnough, manager of the £6.5bn M&G Corporate Bond Fund, £5.8bn M&G Strategic Bond Fund & £10.7bn M&G Optimal Income Fund
Bond Vigilantes, 4 Dec 2012“trading in the sterling corporate bond market is more expensive and difficult than before the financial crisis” Ian Spreadbury, manager of the £3.3bn Fidelity Moneybuilder Income Fund
Investment Week, 4 Dec 2012“anybody who says liquidity is not a problem is lying” Richard Hodges, manager of the £1.6bn Legal & General Dynamic Bond Fund
Independent on Sunday, 19 Aug 2012
“liquidity in the corporate bond market can be pretty patchy” Paul Reed, manager of the £5.8bn Invesco Perpetual Corporate Bond Fund
Investment Week, 17 Dec 2012
So what does this mean?
1. Corporate pricing can be inconsistent and liquidity is lower2. Corporate bonds are therefore less suitable to index tracking
Equities & bonds – important differences
Source: FTSE UK All-share Index market cap from FactSet as at 31 December 2012. iBoxx £ Non-Gilt Index from Barclays as at 31 December 2012
Equities BondsTrading mechanism Exchange Counterparty
Pricing Exchange ?
Market size £1,774 bn £533 bn
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The challenge of managing corporate bond funds
Source: Federal Reserve Bank of New York and Investment Management Association as at January 2012
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IMA Corp Bond & Strat Bond AuM (£bn) LHSCorporate Bond Dealer Positions ($bn) RHS
$bn£bn
No longer able to rely on steady supply of new bond issuance
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Source: Barclays
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70Net £ Investment Grade Corporate Bond Issuance
£bn
Best selling funds in the IMA £ Corporate Bond sector
Source: Lipper as at 31 July 2012
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Fund size (£bn)31 July 2012 31 July 2007
M&G Corporate Bond 6.6 1.1
Invesco Perpetual Corporate Bond 5.7 1.9
M&G Strategic Corporate Bond 5.5 0.9
Scottish Widows Corporate Bond 3.5 2.2
Fidelity Moneybuilder Income 3.1 1.2
Total sector 50.3 25.0
• Fund liquidity carefully monitored and tested
• Illiquid investments at manageable levels
• Pricing protects investors
• Derivatives, cash and gilts
Managing liquidity in credit funds
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Liquidity in Kames Capital’s credit funds
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Source: Kames Capital as at 30 June 2012. Figures are unaudited and there is no guarantee that the above figures will remain unchanged in the future.
Sterling Corporate Bond (%)
Ethical Corporate Bond (%)
Investment Grade Bond
(%)
Strategic Bond (%)
High Yield Bond (%)
1 day or less 35.7 31.8 43.4 36.0 20.0
2-7 days 29.8 25.7 33.7 43.4 50.5
8-30 days 18.4 18.7 13.0 10.2 15.2
Over 30 days 13.7 22.3 8.2 8.6 10.2
Over 6 months
2.4 1.5 1.7 1.8 4.1
So what does this mean?
1. Corporate pricing can be inconsistent and liquidity is lower2. Corporate bonds are therefore less suitable to index tracking
Equities & bonds – important differences
Source: FTSE UK All-share Index market cap from FactSet as at 31 December 2012. iBoxx £ Non-Gilt Index from Barclays as at 31 December 2012
Equities BondsTrading mechanism Exchange Counterparty
Pricing Exchange ?
Market size £1,774 bn £533 bn
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Corporate bond pricing differentials
Source: Barclays , Markit and Bloomberg as at 31 January 2010
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Mar
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May
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Jul 0
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Dec
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Mar
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Apr
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Jul 0
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Barclays Sterling Agg Ex Gilts iBoxx Sterling Non-Gilts
Bank of America/Merrill Lynch Sterling Non-Gilts
cred
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• Process is independent of fund managers and fully audited
• Primary sterling corporate bond price provider is iBoxx
• Supplied prices are monitored for anomalies
• Formal secondary pricing process when required
How we price our corporate bonds
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Regulators concerned about liquidity
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Appendices
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Kames UK OEIC – building blocks or blend?
Source: Kames Capital as at 31 August 2012
Strategic Bond Fund
27%
Investment Grade Bond
Fund
High Yield Bond Fund
28%
9%
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Key personnel for your mandate
Source: Kames Capital as at 31 December 2012
• Multi award-winning team– Our funds benefit from our award-winning fixed income capability
Philip Milburn Melanie Mitchell Claire McGuckin Colin FinlaysonDavid Roberts Euan McNeilStephen Snowden
Iain Buckle
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• Investment grade portfolio– Invests primarily in investment grade and government bonds in any currency– Ability to invest in selected high yield bonds
Kames Investment Grade Global Bond Fund
Source: Lipper as at 31 December 2012. NAV to NAV, income re-invested. Total return, local currency, A Inc USD class. Launch date 8 November 2007. Past performance is not a guide to the future.
1 year 2 years 3 years 4 years 5 yearsFund 15.23% 14.43% 23.76% 52.50% 39.24%
Median 12.36% 14.53% 21.13% 42.65% 33.34%
Quartile 1 3 2 2 2
Outperformance 2.87% -0.10% 2.63% 9.85% 5.90%
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Following a request to provide attendees with an insight into FI Bonds, this presentation has been complied for educational purposes only and does not constitute a financial promotion in terms of section 21 of the Financial Services and Markets Act 2000. The information in this presentation is based on the opinions of the presenter as at 16 January 2013 and should not be interpreted as advice or recommendations. The information contained in this presentation is derived from proprietary and non-proprietary sources deemed by Kames Capital to be reliable and are not necessarily exhaustive or guaranteed as to accuracy. Reliance upon the information in this presentation is at the sole discretion of the listener. The information contained in this presentation is confidential and has been prepared and is intended for use on a confidential basis at the CISI event Guernsey on 16 January 2013 only. It may not be reproduced, redistributed or passed on to any other persons or published on whole or part for any purpose.
Kames Capital Investment Company (Ireland) plc, is an umbrella type open-ended investment company with variable capital registered in the Republic of Ireland (Company Number 442106), registered office at 25-28 North Wall Quay, International Financial Services Centre, Dublin 1. Board of Directors: Andrew Bell (UK), Mike Kirby (Ireland) and Bronwyn Wright (Ireland). Kames Capital Investment Company (Ireland) plc is regulated by the Central Bank of Ireland.
Kames Capital is an AEGON Asset Management company and includes Kames Capital plc (Company Number SC113505) and Kames Capital Management Limited (Company Number SC212159). Both are registered in Scotland and have their registered office at Kames House, 3 Lochside Crescent, Edinburgh, EH12 9SA. Kames Capital plc is authorised and regulated by the Financial Services Authority (FSA reference no: 144267). Kames Capital plc provides segregated and retail funds and is the Authorised Corporate Director of Kames Capital ICVC, an Open Ended Investment Company. Kames Capital Management Limited provides investment management services to AEGON, which provides pooled funds, life and pension contracts. Kames Capital Management Limited is an appointed representative of Scottish Equitable plc (Company Number SC144517), an AEGON company, whose registered office is 1 Lochside Crescent, Edinburgh Park, Edinburgh, EH12 9SE (FSA reference no: 165548).
Important information
FP ID: 2013/15024
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