2012 02 09 swisscanto (lu) bond invest global high yield pptx city wire

Swisscanto Asset Management Ltd.

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Short Duration Global High Yield

An Attractive Carry Strategy

Shahzada Omar Saeed, Head of High Yield

Paris, February 2012

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2

© Swisscanto Asset Management AG

Agenda

1. High Yield at Swisscanto

2. The Case for Short Duration High Yield

3. Investment Process

4. Product(s) and Performance

5. Appendix – The Case for High Yield

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3


Lead Manager's Profile

Shahzada Omar Saeed

Head of High Yield

Omar Saeed (1975), MBA in Financial Management, is the lead

manager for the Swisscanto (CH) Institutional Bond Fund -

Global High Yield I and Swisscanto (LU) Bond Invest Global

High Yield H CHF/EUR/USD B and J

Previously he worked for Western Asset Management Company

in London as a High Yield Portfolio Manager, where he was

responsible to co-manage euros800m in High Yield and

leverage loan portfolios. He gained similar experience at

Foreign & Colonial Asset Management where he was co-

manager for the Global High Yield retail funds. In addition Omar

gained industry experience at Standard & Poor’s Rating

Services in London. Omar received his MBA from Greenwich

University, Pakistan Campus of Southeastern University,

Washington D.C. in 1998 with Distinction in Financial

Management.

Joined Swisscanto: 2009 Professional experience: 13

years

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

F&C MaximumIncome Fund

(Apr 06-Apr 07)

Western AssetEuropean HighYield Portfolio(Jun 07-Jul 09)

Western AssetEuropean

Leverage LoanFund

(Oct 07-Jul 09)

Swisscanto (CH)InstitutionalGlobal High

YieldBond Fund(Jan 10 - to date)

Swisscanto (LU)Bond Invest ShortDuration GlobalHigh Yield Fund(Jan 11 - to date)

Consistent & Solid Track Record of Alpha Generation

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4


Swisscanto – High Yield Team

Hansueli Gasser

Senior Portfolio Manager

Hansueli Gasser (1959), lic. oec. HSG, is a member of the Senior Management and works as Credit Analyst

and Portfolio Manager in the High Yield team. As Portfolio Manager, he co-manages the Swisscanto (CH)

Institutional Bond Fund - Global High Yield I.

He began working in the securities business at UBS in 1985. In the course of his professional career, he has

acquired in-depth knowledge in corporate finance and M&A, and also in the credit, issuing and investment

business.

Joined Swisscanto: 2003 Professional experience: 25 years

Roland Hausheer

Senior Portfolio Manger

Roland Hausheer, (1973), lic. oec. et lic. iur. HSG, is a Director and member of the Senior Management. As a

senior portfolio manager within the high yield team he covers the airlines, energy and transportation sectors

and co-manage its funds. Roland began his career in the financial industry as credit analyst at RMF

Investment Management, Pfaeffikon (SZ) and London.

Prior to that, Roland was part of the Global Proprietary Trading team at Credit Suisse, London and as Credit

Analyst/Portfolio manager responsible for trading fundamental credit strategies in both high yield and

investment grade names.

Joined Swisscanto: 2011 Professional experience: 10 years

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High Yield at Swisscanto

A historical perspective

High Yield AuM’s almost tripled in 2 years --- Committed & Growing Set of Investors

High Yield AUM ($m) at Swisscanto

$500.00

$195.00

$275.00

$0

$200

$400

$600

$800

$1'000

$1'200

$1'400

June 2007 June 2008 June 2009 June 2010 December 2011

Swisscanto (CH) Institutional

Bond Fund - Global High Yield I

Swisscanto (LU) - Bond Invest

Global High Yield H High Yield in non-dedicated funds

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Agenda






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7


Case for Short Duration High Yield

Key benefits:

• Significantly reduces exposure to interest rate risk, as duration is 60% less than that of

regular High Yield;

• Substantially reduce volatility; 40% of the volatility but still able to capture 80% of the

regular High Yield and an excellent substitute for Equities

• Despite similar credit ratings to our core High Yield product, credit risk is lowered due to

shorter duration;

• A strong substitute for leverage loan asset class/funds;

The Only Provider of a Global High Yield Short Duration Fund

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Source: J.P. Morgan; S&P/LCD

Investment Rationale – Short Duration High Yield versus Interest Rate Sensitive Products

High Yield serves as a hedge against rising treasury yields

Short Duration High Yield’s negative correlation to interest rates would be at least similar to leveraged loans

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9


Investment Rationale -

Short Duration High Yield Generates 50% of Volatility, but

Investors Realise 90% of the Regular High Yield

Short Duration High-Yield offers an Attractive Risk Reward

Stabile Phase

Global High Yield

Short Duration

X

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10



Asset class performance during recent periods of market stress

Merril Lynch Benchmark

Indices data as of 26th

January 2012

Benchmark

Credit

ratings

Benchmark

Duration

Benchmark

Spread

Benchmark

Yield

Aug-Oct

2011

sell-off

Systemic

crisis

returns

March 2011

(Fukushima

, rising

treasuires,

ME

uprising)

May 2010

(European

peripheral

crisis)

FY 2008

(peak of

systemic

crisis)

SWC Glb High Yield

(Q432)

SWC Global Short

Duration high-yield (Q471)

Global IG (G0BC)

Sub Financial (Q510)

Global EM (IM00)

Equities (S&P 500)

B+

B+

A

BBB

BB-

n.a.

4.2yrs

1.9yrs

5.6yrs

5.1yrs

5.9yrs

735bps

730bps

245bps

985bps

710bps

8.62%

7.95%

3.65%

11.05%

8.4%

2.0%

(div yield)

-11.8%

-6.8%

-1.6%

-21%

-8.5%

-22%

-0.34%

+0.24%

-0.12%

+0.64%

+1.70%

-0.15%

(intra

month

-6%)

-3.23%

-1.44%

-0.39%

-2.95%

-2.62%

-8.25%

(intra

month

-18%)

-28.6%

-13.1%

-4.9%

-25.7%

-19.0%

-39.1%

Only in a systemic crisis, investors are at risk of significant underperformance

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11



Lower credit risk than headline credit ratings suggest

Despite MGM’s low credit ratings of B3/CCC+, this is not reflective of the group’s adequate

liquidity profile (We Hold the 10.375% May 2014 secured bonds)

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12



Short Duration Global High Yield vs Leverage Loans

Key data points as at 27th January 2012 Swisscanto Short Duration Global High Yield

Benchmark

US Leverage Loans Index

Income 7.57% 4.8%

Yield 7.95% 7.6%

Final maturity <3 years 5 years

Credit Spread Duration 1.9 yrs 2.7 yrs

Spread vs Treasury 730bps 660 bps

Leverage 4.0x 3.9x

Average issuer ratings BB- B

Average issue (Benchmark Credit Ratings) B+ B+

Interest Rate Risk low none (FRN structure)

Liquidity (bid/offer) 1.5pts 2.0pts

A. Total return expectations 10.25% Approx 7.25%

B. Default rate consensus (for next 2 years) 3.0% 2.5%

C. Recovery rate 35% 65%

D. Default loss (B x (100%-C)) 1.9% 0.88%

Total return after default loss (A-D) Approx 8.25% approx 6.25%

Short Duration High-Yield offers a strong alternative to Leverage Loans

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13


• High Yield issuers on aggregate still focused on improving credit metrics & generating

free cash flow;

• Stress levels in covenants are very low compared to prior recessions

Investment Rationale –

High Yield Fundamentals stronger, despite an expected EU Zone

Recession

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14


• Corporate balance sheets would be heading into the downturn in solid shape,

cash debt very close to record highs.

• Albeit a maturity wall exists between H2 2013- 2015, its not an issue for the High Yield

and leverage loan market during for remainder 2011 & 2012

Investment Rationale –

High Yield Fundamentals stronger, despite an expected EU Zone

Recession

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15


S&P, Moody’s and the market forecasts 2012 defaults at approx

2% & recoveries at 40%

Default outlook: Swisscanto’s conservative outlook

Source: Swisscanto

Inverse correlation of Defaults and Recoveries

1.5%

3.9% 4.0%

10.4%

18.2%

5.5%

1.4% 2.4%

0.7% 0.6%

7.3%

12.7%

0.7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E

0%

10%

20%

30%

40%

50%

60%

Aggregate Default Rate (LHS) Aggregate recovery (RHS)

2.0%

4.0%

market estimates default

Rates circa 2%

at recovery of 40%

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16


…leaving room for spread tightening

Swisscanto forecasts fair value for Short Duration high yield market approx 600bps-625bps

What Swisscanto short duration global high yield customised benchmark spread implies for future default rates:

Actual Spread - Excess Spread* Default loss par- recovery rate Default Rate

840 bps - 350 bps = 490 bps / (100%-40%) = 8.2%

Lets assume conservatively a recovery rate of 35% and a 4% default rate, our spread forecast:

Default Rate x par-recovery rate = Default loss + Excess Spread* Forecast

4.0% x (100% - 35%) = 260 bps + 350 bps = 610 bps

Forecasts as of December 2011 *Excess spread = past 25 year premium for liquidity & volatility ranges between 150bps-380bps

*Excess spread = past 25 year premium for liquidity & volatility ranges between 150bps-380bps Forecasts as of December 2011

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17


Spread tightening potential for Short Duration High yield

assessed further from a volatility perspective

• With shorter business cycles and a

prevailing debt crisis volatility likely to

remain elevated for the medium term;

• We assume a VIX level between 25-30

range over the coming years on an

average basis;

• Taking further into account Short

Duration High Yield asset class

generating 50% lower volatility than

regular market, minimum excess spread

investors should be compensated for

conservatively is 350bps

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18


Source: Swisscanto

Total Return Forecast for 12 months

Running income unhedged

(December 2011 onwards) 7.90% Swisscanto short duration HY benchmark Yield

Hedging costs + yield differential -1.00% Interest rate differential + hedging transaction costs

of 10 bps

Positive carry over benchmark +1.00% Typically ranges between +50 bps & 60 bps +

benchmark

Running income CHF hedged 7.90%

Expected impact of change in 2yr treasury yields -0.57% Assume 2 year treasury/bunds yields rise a further

30 bps (1.3%)

Expected impact of change in spreads +2.92% That is 150bps tightening x duration of the

benchmark (1.95 yrs) to 650 bps

Expected return before fees 10.25%

We forecast short duration High Yield total returns of

8%-10%% p.a. (CHF hedged) in 2012

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19


Agenda






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20


High Yield Investment Process – An Integrated Approach

Equal emphasis applied to Top Down and Bottom up Process

Portfolio Construction

approx. 100 issuers

50%

Credit

Analysis

50%

Beta

Analysis

• High Yield Team are members & contributors to the

Credit, Equity & Alternative Investment Tracks

• Objective of these tracks is to gauge "Risk-off" &

"Risk-on" nature of the market

• Opinions and conclusion reached aren't necessarily

binding, as nature of the asset class would demand

a varying Portfolio Strategy implemented by PM

• Bottom up emphasis of 50% does not imply 50% time

spent on bottom up process, almost 80% of time

consumed by High Yield team is on stock selection

& trade idea generation;

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• Vertically integrated

• Apart from the Macro

strategy, the high-yield team

are contributors within the

alpha tracks for the credit,

sector, equity and alternative

investments strategy(s)

• Pragmatic and systematic

Strategy

Issuer analysis &

Portfolio

construction

• Consistent and efficient

implementation

• Solid platform

• Best execution

• Multi-level management of all

relevant risks

High Yield Investment Process – An integrated approach

Simple, systematic and replicable

Control

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• Apart from the Macro

strategy, the high-yield

team are contributors

within the alpha tracks for

the credit, sector, equity

and alternative

investments strategy(s)

• Pragmatic and systematic

Credit Beta

• In-depth Credit

analysis

• Relative Value

Analysis

• Challenged by co-

manager, and sector

specialist from Investment

Grade side during daily

and weekly reviews

• Decisions are immediately

binding for HY portfolio &

Investment grade PM’s

holding High Yield bonds

• Systematic documentation

High Yield Investment Process – An integrated approach

Simple, systematic and replicable

Ratification

• Solid platform

• Best execution via

• trading desk

Execution

Bottom up

analysis &

Portfolio

construction

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23


High Yield Issuer Analysis

An equal emphasis on bottom-up process

Experience managing leverage

Reporting style – transparency, accessibility

Quality and depth of experience

Free cash flow (FCF) generation (EBITDA – cash interest- taxes- working capital adjustments-

capital expenditures-dividends; (FCF/Sales, FCF total debt), net debt to EBITDA, Interest cover ratios

Liquidity and covenant analysis (average debt maturity, borrowing capacity, headroom within

Covenants, bondholder protection

Seniority of debt

Across capital structure, (loans, senior secured, senior sub, sub, holdco etc

Compare value vs market and vs peers, convexity of the bond

Analysing default probabilities via assessing Compensation per turn of leverage & implied equity cushion

Fundamental rating (analog rating agencies) - Trading recommendations (over-/underweight).

In Depth & Traditional Credit Analysis

Relative competitive position

Key profitability drivers

Cyclicality of business

Calculate asset values based on total enterprise value (TEV) to EBITDA, its comparability with to public

comparables, near term market transactions

Management

Company Analysis

Financial Profile

Asset Valuation

Relative Value

Analysis

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R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

24


High Yield strategy

Ratification process

Analysts recommendation

Responsible PM / Analyst

gives recommendations based

on secondary analysis and

market observations

Ratification

Challenged by co-manager,

and sector specialist from

Investment Grade side

during daily and weekly

reviews

Objectives

Decisions are communicated

and immediately binding for

the High Yield portfolio &

Investment grade portfolio

managers holding High Yield

bonds

Systematic documentation

Vertical integrated Analysts/Investment Manager Model

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

Portfolio Surveillance – Adequate Resources to Systematically

Cover 140 Issuers

Global High Yield fund: 80 High Yield

16 Investment Grade

Short Duration Global High Yield: 78 High Yield

10 Investment Grade

Total High Yield Issuers: 102 Significant Overlap

Total Investment Grade Issuers: 22 Limited Overlap

Total Issuers: 124 HY and IG Issuers

Hansueli Gasser: 35-40 HY issuers

(Capital Goods, Consumer cyclical,

Technology, Commodities )

S.Omar Saeed: 30 HY issuers

(Telecoms, Services Cyclical,

Paper & Packaging)

Roland Hausheer: 35-40 Issuers

(Energy, airlines, transportation)

Investment Grade & Xover Coverage

Stefan Eichenberger (autos): 6 (Xover Issuers)

Blaise Roduit Pharma/Consumer Staple): 4 (Xover Issues)

Jerome Benathan (Energy & Telecoms): 8 (IG/Xover Issuers)

Mirko Santucci (IG Financials): 11 (IG Issuers)

Total Issuer Coverage: 29 (24% of issuers)

25


R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

26


Investment Process:

Sell discipline an Absolute Key

Relative value target

Revised credit opinion

• Valuation of bond, meets or exceeds our fair value target

• And/or the credit risk associated with holding a bond is no longer compensating for the expected

returns ; for e.g. entire CCC overweight sold on April 21st 2010 (5 days prior to the recent market sell-off

relating to soverign debt fears);

During May-July 2011 we built upto c20% cash and government bonds, anticipating a sell-off

• Analyst/PM changes his original premise that effects our fundamental valuation

We outperformed the benchmark 4 out of 5 times during periods of market stress

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

27


Investment Process:

Strong Sell Discipline Evidenced by Outperformance during

times of Market Stress

Strong Investment Process Ensures Consistent Outperformance during periods of market stress

-4.00%

-3.50%

-3.00%

-2.50%

-2.00%

-1.50%

-1.00%

-0.50%

0.00%

0.50%

1.00%

Feb 10 May 2010 Nov 10 Mar 2011 July-Oct2011

Benchmark (CHF 100% hedged)

Swisscanto CH Inst Global High Yield Fund

+9bps

+15bps

-47bps

+22bps

+73bps

+255bps

* Before fees * Before fees

13.50%

14.00%

14.50%

15.00%

15.50%

16.00%

16.50%

17.00%

17.50%

18.00%

Benchmark (CHF 100%hedged)

Swisscanto CH Inst GlobalHigh Yield Fund

Cumulative Outperformance

Alpha

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

28


Portfolio construction

• Optimal diversification – we target issuers concentration at about 100 issuers (+/- 10) with

High Yield accounting for 85 names (+/- 10) with the remainder comprising of top 15 (+/-

5) picks in the investment grade space

• Allocate 5%-7% of portfolio for tactical capital structure and relative value arbitrage trades

on a monthly basis

• Consistent implementation of the macro- and credit-strategy

• Neutral positioning of currencies

• Efficient implementation through state-of-the-art tools

• Cost-efficient execution of trades through own execution desk

Optimal diversification, consistent and efficient implementation

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

29


Risk Management

PM risk quantification (Barra)

Ongoing quantification by CRO (Risk Metrics)

Risk monitoring committe identifies new risks

Management of counterparty limits

Independent controlling of all investment guidelines.

Automated control of limits in SimCorp Dimension.

Market risks

Counterparties

Compliance

Ongoing performance control by performance analyst Performance

Operational risk committee

Internal and external audit

Op risk

Comprehensive management of all relevant risks

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

30


• Depiction of the

benchmarks at securities

level

• Daily updated

representation of the

positioning as per

investment policy in the

Simcorp portfolio

management system

• Breakdown of the tracking

error using BARRA

Control

Investment controlling

Portfolio manager Team leader

CIO

• Monthly reviews

• Continuous performance

monitoring

• Limit monitoring by

independent controlling

• Automatic reporting carried

out by the system

Independent investment controlling

Investment

controlling

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

31


Agenda





5. Appendix – The Case For High Yield

R: 253

G: 0

B: 13

R: 1

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B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

Swisscanto (CH) Institutional Bond Fund - Global High Yield I

(Global High Yield Fund)

32


R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

33



Product Strategy

• Actively managed and well-diversified multi-currency global high-yield bond fund

• No Leverage

• Fully hedged in CHF

• Benchmark: Customized Global High Yield Benchmark: 66.67% Merril Lynch

European currency 2% constrained , excluding financials + 33.33% Merril

Lynch US HY 2% constrained, excluding financials

• Merrill Lynch Global Corp. hedged in CHF (Q432) from 01.02.2010

• Minimum average ratings allowed : B-/B3

• Min. 85% invested in high yield bonds (non-sovereign and non-government issuers)

• Maximal bond weight: Weight in the benchmark index + max 3.0% (max 1% if

rated CCC and below)

• ISIN:CH0030955865

• Tracking Error ex ante <3%-4%

• Benchmark:

Customized Global High Yield Benchmark: 66.67% Merril Lynch European currency 2% constrained ,

excluding financials + 33.33% Merril Lynch US HY 2% constrained, excluding financials

• Merrill Lynch Global High Yield hedged in CHF (Q432) from 01.02.2010

• Actively managed and well-diversified multi-currency global High Yield bond fund

• Minimum average ratings allowed : B-/B3

• Min. 85% invested in High Yield bonds (non-sovereign and non-government issuers)

• Maximal bond weight:

Weight in the benchmark index + max 3.0% (max 1% if rated CCC and below)

• Tracking Error ex ante <3%-4%

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

34


Performance – Remains Comfortably Top Quartile (in local

currency terms) versus peers Minimum 7% is the

cumulative

differential in

interest rate s &

hedging costs

b/w CHF & EUR

& USD

In addition differences

in benchmarks

resulting in a

varying total return

profile

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

35


Performance –Performance vs Relevant European Peers (in LC

terms), Since Takeover

Minimum

2.5% interest

rate difference

b/w CHF & EUR

/USD/GBP

Implying we

are top ranked

amongst peers

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

01/0

2/2

010

01/0

4/2

010

01/0

6/2

010

01/0

8/2

010

01/1

0/2

010

01/1

2/2

010

01/0

2/2

011

01/0

4/2

011

01/0

6/2

011

01/0

8/2

011

01/1

0/2

011

01/1

2/2

011

High Yield - Total Return

SWISSCANTO CH INS BD-GL HY-I ALLIANZ EURO HIGH YIELD-C ABERDEEN GL-SL EURO HY BD-A2

PICTET-EUR HIGH YIELD-P UBS LUX BOND FUND-EU HI YD-P CL (GUE) EUR H/Y BOND-B

BLUEBAY-HIGH YIELD BOND-B€ NEWTON GLBL HI YLD BD-£-INC F&C MAXIMUM INCOME BD-1-INC

ING L RENTA-GL HI YLD-PC€H HSBC GIF-EURO H/Y BOND-IC THREADNEEDLE-GL H YD EUR-AE

KAMES HIGH YIELD GLOBL BD-A€

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

36



Consistent investment style and strategy

• Better than benchmark credit ratings in our fund:

Fund BB- vs Benchmark B+

• Shorter duration than the benchmark, 0.4yrs-

0.5yrs, allowing to reduce volatility & retain pull

to par feature

• Retain a greater security and recovery profile for

our fund. The benchmark consists of 30%

secured bonds, we maintain 37.5% secured

bonds (within our 35%-40% targeted range)

• Retain NO active exposure to toxic & illiquid high

yield rated financial tier-1 securities

• Retain a running yield of approx 100bps above

the benchmark coupon of 7.8% we plan to

maintain this level, implying a cumulative income

of approx 8.9% (before tax) on a cumulative

basis (unhedged);

Higher Quality, Higher Carry, High Security & Yet Market Beating Performance

27th January, 2012

Key Portfolio statistics Global High Yield Benchmark

Cash 2.90% 0.0%

Investment Grade 10.70% 2.60%

BB 29.0% 52.9%

B 44.8% 32.9%

CCC 12.7% 11.6%

Average credit ratings B+/BB- B+

Average Duration 3.7yrs 4.15yrs

Average Yield 9.77% 8.58%

Par weighted coupon 8.92% 7.75%

Secured bonds 37.5% 30.4%

Cumulative Performance** 17.67% 15.12% **since internal implementation of new benchmark internally 1st feb 2010 & before costs, fees,

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

37



Key sector positioning

• Emphasis still primarily based upon

issuer selection and bottom-up

analysis

• Overweight, TMT, Healthcare,

Consumer & services cyclical,

Packaging, Building materials & IG

subordinated (Tier-1, UT2, LT2)

financials with short calls (<2 years)

• Retain underweight Energy & Utilities,

Basic Industries, Airlines, Housing &

construction sectors

• Current emerging markets exposure

(on a commercial basis) of approx

23%, (main exposures to South

Africa, Latin America, Russia,

China/HK,)

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

38

© Swisscanto


Key Data

Name Swisscanto (CH) Institutional Bond Fund - Global High Yield I

Currencies CHF (global portfolio all currencies are hedged)

Tranches I (Institutional)

Security number 3095586

ISIN CH0030955865

Domicile Switzerland

Distribution Distributing

Registration CH

All-in fee 0.80% p.a.

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

Swisscanto (LU) Bond Invest Global High Yield H CHF/EUR/USD

B and J

(Short Duration Global High Yield Fund)

39

© Swisscanto

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

40

© Swisscanto

Swisscanto (LU) Bond Invest Global High Yield H

Key Investment Guidelines

Name Swisscanto (LU) Bond Invest Global High Yield H (Short Duration)

Portfolio Maturity 3 years – 4years (Current 2.85years)

Single Positions Max 10% > 4 years

Portfolio (credit) spread duration Benchmark 1.9years +/- 0.5years or <2.5 years

Portfolio Instruments Fixed & Floating rate notes + CDS

Target Issuers Minimum 70 issuers

Reference Index 50% Merril Lynch US HY (1-3 year) + 50% Merril Lynch EU HY (1-3 year), ex-financials

Current Yield to Maturity 9.5% (dynamic)

Average Credit Ratings Strictly maintained between B+ to BB- (benchmark B+)

Per Issuer BB & B max 5%

Per Issuer >CCC max 2.5%

Secured Bonds Exposure >30% of portfolio

Sectors Max weight per sector 20%

Max weight Financials 10% (incl: Max weight subordinated financials 5%)

Risk Tracking error ex ante >3%-4%

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

41



Consistent Investment Style & Strategy

27th January, 2012

Key Portfolio statistics Short Duration High Yield Fund Benchmark

Cash 3.5% 0.00%

Investment Grade 8.1% 1.80%

BB 23.6% 54.0%

B 60.0% 31.4%

CCC 4.8% 12.8%

Average Credit Ratings BB- B+

Average Credit Spread Duration 1.94yrs 1.90yrs

Average Yield 9.63% 7.95%

Secured bonds 43.2% 17.5%

EU High Yield 55.0% 50.0%

US High Yield 45% 50%

Total positions 115 265

Cumulative Performance* 3.52% 2.05% *CHFJ Tranche initiated 31st January 2011 before fees, hedging costs

Higher Quality, Higher Carry & High Security Yet Market Beating Performance

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

42



Pull to Par Effect

Pull to Par effect to become very strong

in the next 6 months;

Investors entering in the strategy now,

are effectively entering the sweet-spot of

the portfolio ---almost 75% of portfolio

will have a duration less than 2 years;

Volatility in the fund is likely to decrease

even more and the highest yield

amongst peers of 9.5% will allow

superior risk adjusted returns;

Focus is to maintain our superior track

record of ZERO defaults and ZERO

near defaults;

10.50%

36.5%

33.00%

8.50%

15% Credit Spread Duration <1year

Credit Spread Duration 1-2 years

Credit SpreadDuration 2-2.5 years

Credit SpreadDuration2.5-3 years

Credit Spread Duration >3years

Investors Taking Exposure Now Are Close to Entering The Sweet Spot of the Portfolio

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

43



Diversification - A Flexible Manadate

A Portfolio of 80 issuers spread amongst 15

sectors;

54% of sector positioning is defensive;

US High Yield 57%

EU High Yield 43%

US High

Yield , 45%

EU High Yield, 55%

Anticipating the LTRO scheme by the ECB, on

the 19th December 2011, we cut our entire

overweight in US HY and moved OW in EU HY

Global Strategy and expertise allows us to

efficiently invest across geographic areas;

Geographic Strategy at

Launch 31st Janaury 2011

Geographic Strategy at

Present

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

44



Performance vs Peers

Maintain zero exposure in GIPS, ex-Italy (3.3% exposure to Italian high yield corporates), zero defaults &

zero near defaults in our portfolio

Contrary to the above 97% of our investments reported earnings better than and in line earnings results,

showcasing our superior stock selection capacity

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

45



Difference's in Total Return Profile Compared to Peers

Relative Underperformance versus peers purely due to differences in product &

geographic area of focus (peers are focusing on >B and 100% US HY short duration

benchmarks;

Substantiates our Superior Alpha Generation Capacity versus Competitors

* Before fees

-1.00%

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

US HY (BB-B) 1-3 year 2% Cap(USD H)

EU High Yield (ex financial) 2%Cap (CHF H)

Swisscanto Short Duration HYBenchmark (ex-financial) 2% cap

(CHF H)

Swisscanto Global HY ShortDuration FUND (CHF J Tranche

H)

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

46


Why Swisscanto High Yield?

• Swisscanto is the only provider of a truly global high yield short duration fund;

• Experienced Manager with a strong track record of consistent alpha generation --- lead manager's solid track

record of generating only 1 default and 1 near default in 13 years;

• A well diversified portfolio a result of a implementing a strong investment process;

• Portfolio Strategy geared towards consistently maintaining higher quality, higher carry, higher security bias,

and still generate higher returns than its benchmark;

• Swisscanto short duration high yield fund, offers the highest yield (of 9.5%) versus all short duration peers in

the world;

• Top Scores by Lipper (CH-Institutional Fund)

An Unrivalled Investment Philosphy and Product Strategy at Present

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

47

© Swisscanto


Key Data

Name Swisscanto (LU) Bond Invest Global High Yield H

Currencies CHF / EUR / USD (global portfolio all currencies are hedged)

Tranches B (Retail) J (Institutional)

Security number H CHF B: 11963041 H CHF J: 12353466

H EUR B: 11963062 H EUR J: 12353467

H USD B: 12353464 H USD J: 12353468

ISIN H CHF B: LU0556184884 H CHF J: LU0582724935

H EUR B: LU0556185345 H EUR J: LU0582725072

H USD B: LU0582725312 H USD J: LU0582725403

Domicile Luxemburg

Distribution Reinvesting

Registration CH, FL, D, A, LUX

All-in fee B-Tranche: 1.30% p.a. / J-Tranche: 0.80% p.a.

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

48


Agenda





5. Appendix – The Case For High Yield

R: 253

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B: 13

R: 1

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B: 158

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G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

49


High Yield versus Equities

Source: Barclays, J.P. Morgan, S&P/LCD

6 Market Crisis and 20 years on, High Yield asset class has experienced 5 negative returns only

9.7

25.6

17.4

5.0

12.5

0.8

-9.6

46.2

15.7 17.1

-1.0

19.2

11.4 12.8

1.9 2.4

-5.9

5.3

-1.4

29.0

11.1

2.7

11.9

1.9

15.1

3.0

Even after big gains, returns historically remain healthy in subsequent years

Stabile Phase Stabile Phase Stabile Phase

84‘ 85‘ 86‘ 87‘ 89‘ 91‘ 93‘ 92‘ 00‘ 98‘ 97‘ 96‘ 95‘ 94‘ 04‘ 03‘ 02‘ 01‘ 99‘ 90‘ 05‘ 06‘ 07‘ 08‘ 10‘ 88‘ 09‘

Stabile Phase

10.5%

11'‘

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

50


….and returns have been generated with significantly lower

volatility

An efficient portfolio should have consistently higher allocations to the High Yield asset class

Realized returns

Standard Deviation (Risk) 0.0 22.0 2.0 4.0 6.0 8.0 10.0 12.0 14.0 16.0 18.0 20.0

-7.0

8.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

GOBC CHF hedged HPIC1 CHF hedged

JCNF CHF hedged

Cust Aktien Schweiz

Hedged MSCI North America Hdg USD

Hedged MSCI UK GBP

Hedged MSCI EMU EUR

Hedged Russell 2000 TR USD

Cust High Yield SW BM

At 35% exposure to Swisscanto’s customised High Yield benchmark allows credit only or credit/equity portfolios

to maximize the sharpe ratio of the fund and boost weighted total returns by 50bps

100% Global

Investment Grade

JCNF is US HY

HPIC1 is EUR HY

Source: Swisscanto

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

51


High Yield An Excellent Substitute for Equities

The High Yield asset class has consistently outperformed equities

Stabile Phase

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

52


Source: J.P. Morgan; S&P/LCD

High Yield versus interest rate sensitive products

High Yield serves as a hedge against rising treasury yields

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

53


High Yield versus Investment Grade

High Yield performs well versus Investment Grade in a rising rate environment

12 months ending 10 Year Treasury yield

move

High Yield bonds total

returns (CHF hedged)

Investment-grade bonds

total returns (CHF

hedged)

Sep 87

Feb 89

Dec 1994

Dec 1999

May 2004

Jun 06

Sep 10- Apr 2011

220 bps

117 bps

204 bps

179 bps

130 bps

120 bps

approx 90bps

3.93%

6.87%

-0.19%

-1.58%

11.65%

2.80%

5.35%

-3.74%

0.97%

-2.74%

-5.67%

1.49%

-4.80%

-1.05%

High Yield has consistently outperformed investment grade over the past 6 cycles of treasury

yield increases

Source: Swisscanto, Bloomberg, Merril Lynch

during the past 25 years High Yield has out-

performed investment grade bonds in each treasury

rate hike cycle by 630bps on a CHF hedged basis

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

54


Default & Recovery Outlook

Source: DB, Federal Reserve, Moody's

Lending standards globally likely to remain loose & despite a softening in global ISM

data average default rates to remain low combined with recovery values ranging 35%-40%

10

20

30

40

50

60

70

30 40 50 60 70

ISM Manufacturing

Recovery R

ate

(%

)

Swisscanto's expectations

10

20

30

40

50

60

70

30 40 50 60 70

ISM Manufacturing

Recovery R

ate

(%

)

10

20

30

40

50

60

70

30 40 50 60 70

ISM Manufacturing

Recovery

Rate

(%

)

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

55


Source: Swisscanto

Resulting in greater protection and significantly higher and sustainable recovery rates through

a default cycle

..in addition bonds offering increasingly better security

packages

12% 20% 23% 26.7% 30% 33% 34.5%

0%

20%

40%

60%

80%

100%

120%

avg b/w 1982-2007

2008 2009 2010 2011E 2012E 2013E

Unsecured Bonds Secured Bonds

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

56


• High Yield issuers on aggregate still focused on improving credit metrics & generating

free cash flow;

• Stress levels in covenants are very low compared to prior recessions

High Yield Fundamentals: What If a Recession Materializes?

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

57


• Corporate balance sheets would be heading into the downturn in solid shape,

cash debt very close to record highs.

• Albeit a maturity wall exists between H2 2013- 2015, its not an issue for the High Yield

and leverage loan market during for remainder 2011 & 2012

High Yield Fundamentals: What If a Recession Materializes?

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

58


What If a Recession Materializes? Where do High Yield issues

stand from a credit quality perspective?

High Yield issuer leverage 25% lower and proportion of CCC’s 50% lower than

peak for new issues

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

59


What If a Recession Materializes? Where do High Yield issues

stand from a structural perspective?

• New issuance has secured bonds 2x higher than 2006 providing downside protection;

• Defaults will be low as excessive LBO style lending experienced during 2004-2007 did not

take place since 2009, i.e. four times lower

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

60


And from a pricing perspective? – Significant premium will

continue to be offered in the primary market

Due to above average primary issuance required between 2012-2013 to fund the maturity wall

between 2013-2015 investors will continue to be more than adequately compensated for the credit risks

Yearly cash flows in the European leverage finance market (coupons, cash

& redemptions) of approx E15bn not enough to cover the refinancing needs

between 2013 -2015 - in US HY yearly cash flows of $90bn is adequate

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

61


S&P, Moody’s and the market forecasts 2011 & 2012 defaults at approx

1.5%-2% & recoveries at +40%

Default outlook: Swisscanto’s conservative outlook

Source: Swisscanto

Inverse correlation of Defaults and Recoveries

1.5%

3.9% 4.0%

10.4%

18.2%

5.5%

1.4% 2.4%

0.7% 0.6%

7.3%

12.7%

0.7%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011E 2012E

0%

10%

20%

30%

40%

50%

60%

Aggregate Default Rate (LHS) Aggregate recovery (RHS)

2.0%

4.0%

market estimates default

Rates circa 1.5%-2%

at recovery of +40%

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

62


…leaving room for spread tightening

Swisscanto forecasts fair value for high yield spread to range between 650bps-700bps

What today’s Swisscanto global high yield customised benchmark spread implies for future default rates:

Actual Spread - Excess Spread* Default loss par- recovery rate Default Rate

840 bps - 420 bps = 420 bps / (100%-40%) = 7.0%

Lets assume conservatively a recovery rate of 35% and a 4% default rate, our spread forecast:

Default Rate x par-recovery rate = Default loss + Excess Spread* Forecast

4.0% x (100% - 35%) = 260 bps + 420 bps = 680 bps

Forecasts as of December 2011 *Excess spread = past 25 year premium for liquidity & volatility ranges between 150bps-380bps

*Excess spread = past 25 year premium for liquidity & volatility ranges between 150bps-380bps Forecasts as of December 2011

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

63


Spread tightening potential assessed further from a volatility

perspective

• With shorter business cycles and a

prevailing debt crisis volatility likely to

remain elevated for the medium term;

• We assume a VIX level between 25-30

range over the coming years on an

average basis;

• Therefore, minimum excess spread

investors should be compensated for

should range average 400bps-425bps

(2x the 26 yr historical average or 14bps

of excess spread per unit of VIX)

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

64


We forecast medium duration High Yield total returns of 10%-12% p.a.

(CHF hedged)

Source: Swisscanto

Total Return Forecast for 12 months

Running income unhedged

(December, 2011 onwards) 8.42% Swisscanto customised benchmark yield

Hedging costs + yield differential -1.23% Interest rate differential + hedging transaction

costs of 12 bps

Positive carry +0.88% To range between +50 bps & 100 bps + BM

Running income CHF hedged 8.07%

Expected impact of change in 5-7yr

treasury yields -1.85%

Assume 7year bunds/US treasuries rise a

further 50bps to 3% US treasuries

Expected impact of change in spreads +5.9% That is 140bps tightening x duration of the

benchmark (4.2 yrs) to 700 bps

Expected return before fees 12.1%

Market Forecasts 5%-7% total returns in USD hedged terms (before fees) for 2012

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

65


Should High Yield be ignored?

We call for an allocation of approximately 10% to High Yield (medium and short)

Increasing allocations by institutional & private wealth managers at the expense of govt bonds, investment grade bonds

32%

European + US High Yield

(ex-financials)

8%

56%

4%

EUR + US

Investment Grade

European + US

Leverage loans

EUR + US

Treasuries

Increasing convergence

between Leverage Loans

& High Yield asset

classes

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

66


Contacts

Account Management

Shahzada Omar Saeed

Head of High Yield

Director

Waisenhausstrasse 2

CH – 8021 Zurich

+41 58 344 49 11

[email protected]

Portfolio Management

mailto:[email protected]

R: 253

G: 0

B: 13

R: 1

G: 128

B: 158

R: 255

G: 153

B: 0

R: 229

G: 229

B: 229

R: 102

G: 102

B: 102

R: 255

G: 121

B: 127

R: 1

G: 138

B: 69

R: 198

G: 236

B: 198


G: 214

B: 132

R: 36

G: 192

B: 218

R: 255

G: 185

B: 185

R: 164

G: 236

B: 245

67


Disclaimer

This documentation is exclusively determinated for use through qualified representatives of Swisscanto. Any other use

or duplication is strictly prohibited. The documentation must in no way be used as promotion material for public

distribution or provided to third parts, neither direct nor indirect, without previous written approval from Swisscanto Asset

Management Ltd. The representative is alone responsible for the use of the information contained in this document,

particularly towards investors but also towards Swisscanto. The past performance does not represent an indicator for the

evolution to come and does not constitute a guarantee for any future results. The content was researched and

assembled meticulously. However, Swisscanto Asset Management Ltd. can not guarantee the accuracy, integrity or

actuality of the contained data. The relative sales prospectus and annual report represent the only binding data source

for the acquisition of Swisscanto investment funds. If you need further information, please send your written request to

Swisscanto Asset Management Ltd., Waisenhausstrasse 2, 8021 Zurich.

2012 02 09 swisscanto (lu) bond invest global high yield pptx city wire

Economy & Finance

solid track

high yield

regular high

high yield

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shahzada omar

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