allianz global floating rate notes plus...2018/08/16 · allianz global floating rate notes plus...
TRANSCRIPT
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Value. Shared.
July 2018
Active is: Staying afloat when
interest rates rise
Allianz Global
Floating Rate
Notes Plus
For fund distributors and
professional investors only
#happyfloating
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2 Source: Allianz Global Investors
What are Floating Rates Notes?
Plain vanilla (fixed) bonds
Fixed coupon until maturity
Sensitivity to rising interest rates
Rate risk defined through duration
Duration: 6 years
Rates:
+1%
Price:
-6%
Floating Rate Notes (FRNs)
Variable coupons, resetting periodically
Coupons linked to interest rates
Protection against rising rates
~
Rates and
FRN Coupon:
+1%
Price:
stable
FRN Coupon:
+1%
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3
FRNs can provide protection from rising rates
Source: AllianzGI, Bloomberg, 30 April 2018
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0
2
4
6
8
10
12
1990 1995 2000 2005 2010 2015
Yie
ld %
US Germany
UK Japan
Core government 10 year yields
Will yields continue to fall for another 25 years?
Our projections for US rates
Rates set to rise, with the US ahead of others
We forecast a 2.75% terminal Fed Funds rate, implying a further 4x
rate hikes in this cycle
Europe and other economies are expected to catch up in terms of
rate rises, over the next 2-3 years
0
1
2
3
4
5
6
7
8
9
10
1990 1995 2000 2005 2010 2015 2020
Rate
(%
)
Fed Funds 5-year UST
30-year UST
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Allianz Global Floating Rate Notes:
Strategy overview
Source: Allianz Global Investors
Global approach
Not beholden to benchmarks
Superior opportunity set and diversification benefits
versus a domestic strategy
Crossover focus
Focus on BBB/BB/B securities to exploit dislocations between
IG & HY, to benefit from the historically superior risk/return
payoff in this space
Expansive investment universe
Benefit from access outside of corporate markets, into
securitised assets and fixed interest securities using interest
rate hedges to achieve floating exposure
What we do
Objectives
Return: Cash +150bp per annum, on average, over a cycle
Risk: < 3% volatility per annum
Investment Grade
Corporate FRNs
High Yield
Corporate FRNs
Synthetic FRNs
(fixed bonds + swaps)
Securitised FRNs
(ABS / MBS)
Global FRN investment universe
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A team of expert credit investors managing
Allianz Global Floating Rate Notes Plus
Allianz Global Investors has more than 30 years experience in managing global floating rate notes, with currently USD 2.35
bn AuMs.
The team is directly in charge of Credit selection (IG/HY) and has not
experienced a single default since 1999.
Malie Conway Chief Investment Officer
– Global Fixed Income
Jonathan Yip CFA
Head of Investment
Grade Credit – Global Fixed Income
« The risk profile of the fund is investment grade, with an overarching winning-by-not-losing credit philosophy ».
Jonathan Yip
Source: Allianz Global Investors, June 2018
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6
Why Allianz Global Floating Rate Notes?
Source: Allianz Global Investors
Earn more than
cash
Attractive risk / return profile vs
traditional bonds strategy
Active diversification for reducing risks
Upgrade your
bond portfolio
We are late in the credit cycle. High
yield strategies could be vulnerable to
volatility – search for quality & be active
Benefit from rising
interest rates
Avoid the traditional interest rate risk of
fixed strategies and capitalise from
interest rate hikes by using FRNs
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7
01 Upgrade your bond
portfolio
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Why upgrade your bond portfolio?
Source: Allianz Global Investors
Active is… avoiding the blowups.
1. We are past 6 o‘clock in the credit cycle
2. BUT cycles vary by industry and geography
3. Most sectors have robust fundamentals
4. Credit risk is still there to be harvested, but
the beta trade is over
Credit outlook
The "typical"
Credit Cycle
The credit cycle
Maximum
risk
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Upgrade your bond portfolio
Source: Allianz Global Investors, as of 30 June 2018. This is for guidance only and not indicative of future allocation. A performance of the strategy is not guaranteed and losses remain possible.
of the portfolio has an
Investment Grade
rating
86%
The plus: high yield bonds
Additional diversification
The core: high quality bonds
Stable returns
Low volatility
Investment Grade
High Yield
Average rating of the portfolio IG
Focus on BBB/BB/B securities to exploit dislocations between investment grade and high yield, to benefit from the historically superior risk/return payoff in
this space
Target return : Cash +150bp per annum, on average, over a cycle
Target volatility: < 3% volatility per annum
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10 Source: Allianz Global Investors, as of 30 June 2018; This is for guidance only and not indicative of future allocation. A performance of the strategy is not guaranteed and losses remain possible.
Active diversification for reducing risks
Active sector allocation to use additional return opportunities and diversify risks
The fund invests in different regions of the world, and in highly liquid currencies (USD, EUR and GBP)
2%
15%
46%
23%
10% 4%
Breakdown by Rating
AAA AA A BBB BB B
42%
9%
26%
12%
2% 9%
Breakdown by Geography
USA & Canada UK
Europe Asia Pacific
Latin America Other
45%
1% 4% 6%
10%
8%
1%
2%
6%
16%
Breakdown by Sector
Financials Basic Industry
Capital goods Communications
Consumer cyclical Consumer non cyclical
Energy Technology
Other Securitized
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02 Benefit from rising
interest rates
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12
Why invest in Floating Rates Notes now?
Source: Allianz Global Investors, Bloomberg
1,50
1,75
2,00
2,25
2,50
2,75
3,00
3,25
3,50
Mrz 18 Jun 18 Sep 18 Dez 18 Mrz 19 Jun 19 Sep 19 Dez 19 Mrz 20 Jun 20 Sep 20 Dez 20
Fe
d F
un
ds R
ate
(%
)
We are here
1-2 years of hikes
Fed wants policy
rate >3%
???
Expected path of US cash interest rates
How FRNs behave during a rate
hiking cycle ?
Benefit from protection against rising rates,
given that FRN coupons increase with rates
Avoid one of the traditional sources of
drawdown risk in fixed income investing
Hedge against inflation, which typically rises
with interest rates
+ potential for other central banks to follow the Fed…
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Benefit from rising interest rates
Source: Allianz Global Investors, Bloomberg, BoAML. Index returns are based on a blend of Investment Grade & High Yield indices: 25% USD IG + 25% EUR IG + 50% Global HY. Fixed index constituents: ER00, C0A0, HW0C; FRN
index constituents: LEF1TRUH, BFRNTRUU, HFLT. All index returns reported in USD-hedged terms. Past performance is not a reliable indicators of future results.
-3,5%
-3,0%
-2,5%
-2,0%
-1,5%
-1,0%
-0,5%
0,0%
0,5%
1,0%
Attractive income potential even in a challenging
environment for conventional fixed rate bonds
Floating Rate Note (FRN) coupons are linked to interest
rates and therefore increase when rates rise
FRNs can provide protection from rising interest rates
FRNs outperform fixed rate bonds when interest rates
rise
1,5%
1,8%
2,0%
2,3%
2,5%
2,8%
3,0%
Dez 12 Dez 13 Dez 14 Dez 15 Dez 16 Dez 17
+3.50%
Floating Rate Note index return
Fixed bond index return
+2.25%
+1.25%
US 10y treasury yield
1 2 3
Outperformance of FRNs vs Fixed bonds when rates rise Event Date
1 Taper tantrum May-Jun 2013
2 Trump election Oct-Nov 2016
3 Inflation Rebound Jan-Feb 2018
3 Inflation Rebound Jan-Feb 2018
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03 Earn more
than cash
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A unique, differentiated offering versus the broader market
While traditional cash-like options offer very low or in some currencies negative yield, Allianz Global Floating Rates Notes Plus is able to deliver positive yields for different kinds of investor needs and currencies with an investment grade risk profile.
Source: AllianzGI, yields are quoted in USD-hedged terms using Yield-To-Maturity expectations. This is no guarantee of present or future characteristics of the investment strategy. Data as of
June 2018.
Earn more than cash
Money
Market
FRN
Short
Term
Bond
Mortgage
FRN HY FRN
Bank
Loans
Allianz Global
Floating Rate
Notes Plus Lower expected
yield
Higher
expected
yield
Investment-Grade FRNs
feature high quality and short
durations and are therefore
defensive in nature.
High-Yield FRNs offer spreads
similar to fixed-rate high-yield
bonds but without the associated
duration risk.
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An attractive risk / return profile
in USD hedged terms
Source: Allianz Global Investors, Bloomberg. US ST = ICE BofAML1-3 Y US Broad Market Index (US01); US Credit = ICE BofAML US Corporates Index (C0A0); US AGG = ICE BofAML US Broad Market (US00); Global HY = ICE
BofAML Global HY Constrained hedged in USD (HW0C). As at 30 June 2018
-1
0
1
2
3
4
5
6
7
0 1 2 3 4 5 6 7 8 9 10 11
Allianz Global FRN
US Agg
US Credit
Global HY
US Short Term Bond
Exp. Return in %
Exp. Risk in %
Allianz Global FRNs targets
an attractive risk-adjusted
return versus traditional bond
strategies
Expected risk based on historical
volatility of asset classes (over past
10 years), and using max volatility
limit for Allianz Global FRN
Expected returns based on current
yields in USD hedged terms
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Performance and
positioning
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18
Allianz Global Floating Rate Notes Plus IT USD
Performance
Past performance is not a reliable indicator of future results. Data gross of fees; calculation at the net asset value (BVI method) based on the assumption that distributions are reinvested and excluding initial charges. Individual costs such as
fees, commissions and other charges have not been taken into consideration and would have a negative impact on the performance if they were included.
Source: Allianz Global Investors, 31 July 2018
Key Features
Objective: Cash +150bp per annum, over a cycle
Risk: less than 3%
Investment Universe: Investment Grade, High
Yield, Emerging Market Corporates & Securitised
Fund
Inception date Feb 2018
AUM $154m
Performance comparison Since fund inception
Allianz Global FRNs +0.94 %
Performance (gross of fees cumulative returns)
-0,40%
-0,20%
0,00%
0,20%
0,40%
0,60%
0,80%
1,00%
Jan Feb Mrz Apr Mai Jun Jul
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Allianz Global Floating Rate Notes Plus
Portfolio positioning
Currency of Bonds* % Invested
EUR 17.7
GBP 3.5
USD 78.3
Characteristics
Weighted Average Tenor 4.1 yr
Weighted Duration 0.2 yr
Weighted Average Rating A-
1LIBOR spread = asset swap spread / discount margin, adjusted for FX hedging basis impacts 2Reference rate = 1 year forward expectations of local cash rate, derived using YTM of 1 year fixed swaps 3Yield equivalent = approximation of the 1-year-forward-looking income characteristics of the fund, considering both the spread and cash rate levels in each local market
Source: Allianz Global Investors, 30 June 2018. * All FX exposures are fully hedged to base currency through FX Forward hedges
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Allianz Global Floating Rate Notes Plus
Opportunities and risks
Opportunities Risks
Source: Allianz Global Investors; data as per 30.06.2018
Prospect of yield above money market rates, above-average yield potential of ABS/MBS
Relatively high degree of price stability through short duration
Broad diversification across numerous securities
Possible extra returns through single security analysis and active management
Currency gains possible in share classes not hedged against investor currency
High-yield bonds and ABS/MBS entail above-average risk of volatility, illiquid markets and capital loss. The volatility of fund prices may be strongly increased
Limited return potential due to short duration
Limited participation in the yield potential of single securities
Success of single security analysis and active management not guaranteed
Currency losses possible in share classes not hedged against investor currency
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A Appendix
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Team and investment
process
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23
18-1504 – Global Fixed Income
Richard House
Head of Emerging Markets
24 years
Oleksiy Soroka, CFA
Emerging Market Credit
21 years
Naveen Kunam
Local Currency Sovereigns
16 years
Shahzad Hasan
Hard Currency Sovereigns
14 years
Eoghan McDonagh
Emerging Market Credit
13 years
Daniel Ha
Emerging Market Corporates
11 years (HK)
Julian Le Beron, CFA
Head of Developed Markets
21 years
Brian Tomlinson
Developed Markets
28 years
Sam Hogg, CFA
Developed Markets
7 years
Jay Mistry
Developed Markets
5 years
John Makowske
Product Specialist
34 years (NY)
Andrew Curran
Senior Product Specialist, EMD
28 years
Raj Jadav, CFA
Senior Product Specialist
21 years (NY)
Matthew Chaldecott, CFA
Product Specialist
11 years
Luke Copley, CFA
Product Specialist
7 years
Dennis Baas, CAIA
Product Specialist
7 years
Priyanna Shah
Product Specialist Associate
5 years
David Newman
Head of Global High Yield
30 years
Frits Lieuw-Kie-Song*
31 years (NY)
Mark Wade*
24 years
Brian Abdelhadi*
16 years
Jonathan Yip, CFA
Head of Investment Grade
Credit
21 years
Daniel Delaney, CFA
Investment Grade Credit
16 years (NY)
Oliver Sloper*
6 years
An experienced portfolio management team of global
specialists
Global Fixed Income Portfolio Management
Global Sovereign Global Credit
Emerging Markets Developed Markets Investment Grade High Yield
Applied Analytics
Malie Conway
Chief Investment Officer, 32 years
Product Specialists
David Gillard
Head of Applied Analytics
24 years
Yin Tse Loh, FIA
Portfolio Manager, LDI
11 years
Floris De Vries
Associate Portfolio Manager, LDI
3 years
Dedicated Global Credit Research
Dedicated Global Sovereign Research
3 Investment Professionals
15 Investment Professionals
Organisation by team function is illustrated; reporting lines may be different. NY = New York, HK = Hong Kong. Data as of June 2018
*Providing Portfolio Management support
Extended
AllianzGI
Resources:
Trading
56 Traders,
24 hour service
Fixed Income Resource
99 Fund
Managers/Analysts
Global Sovereign
Research & Strategy
Equity Research
Over 80 Analysts with
2,100 stocks covered
Portfolio Construction
Lydia Wagenmann
Head of Portfolio Construction
23 years
Steven Grieve
Portfolio Analyst
2 years
William Whyte
Portfolio Analyst
1 year
Alexander Robey
Portfolio Analyst
1 year
Independent Portfolio
Risk Management Team
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24
Global credit investment process
Source: Allianz Global Investors
Economic Research
Global Growth
Inflation Outlook
Interest Rate Outlook
Event Risk
Proprietary Indicators
Geopolitical Views Sector Selection Event Risk
Issuer Analysis
Industry Dynamics
Quantitative Screens
Capital Structure and Collateral Analysis
Covenant Analysis
Step 1
Relative Value Analysis
Step 3
Security Selection
Step 2
Portfolio Structure
Currency denomination of Issues
Yield Curve
Country of Risk
Rating Migration
Quality Tiers
Step 4
Implementation
Monitor and review
Trade Modelling
Best Execution
Credit Conditions
Supply & Demand
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25
Credit research:
Financial and qualitative analysis | Relative value
Source: Allianz Global Investors
Research
Focus
~ 350
Investment
Grade
~ 350 High
Yield
Research
Output
Quarterly
sector
overview
Issuer
profiles
Ad-hoc
market
updates
Qualitative Company Analysis
Transparency of business, strategy
Quality of management
Ownership & Creditor Structure
Identify positive/negative credit catalysts
Sector Analysis
Sensitivity to Economic Cycle, Competition, External influences
Financial Company Analysis
Revenue & cost structure
Income & cash flow trends
Financial leverage & debt service coverage
Liquidity
Structural Assessment
Capital structure
Covenants
Jurisdictional implications
Relative Value Assessment
Quantitative Filters
Credit Watch Model
ESG Screening and High Yield Credit Filter
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18-1504 – Global Fixed Income
We have employed a proprietary quantitative “Credit Watch” model as part our
investment grade credit selection process since 1999
Since implementation, it has protected our portfolios from all investment grade corporate
defaults and it has also protected against severe rating transitions and distress
The model uses equity market signals as a leading indicator to predict future “Fallen
Angels”
A rigid sell discipline is crucial for success
* Event = default, multi-notch downgrades, doubling of spreads or bonds trading on price
Source: Allianz Global Investors.; data as at February 2018 This is no recommendation or solicitation to buy or sell any particular security.
A performance of the strategy is not guaranteed and losses remain possible.
Credit Watch Model: our proprietary early warning
system
Main inputs
Credit Watch Model
Signals
Equity price
movement
Company
size
Equity price
volatility
Company
leverage
Watch The positions may
not be initiated or
added to
Sell The position must
be sold
Clear Security may be
purchased
Issuer Model Sell Date Event Date*
1 KPN Aug-00 Sep-01 2 Marconi Feb-01 Aug-01 3 Enron Jun-01 Nov-01 4 ABB Jun-01 Apr-02 5 Qwest Jul-01 Feb-02 6 WorldCom Jan-02 Apr-02 7 Sprint Jan-02 Jun-02 8 El Paso May-02 Aug-02 9 Household Jul-02 Oct-02 10 Bombardier May-04 Nov-04 11 GM Oct-04 Mar-05 12 Ford Jan-05 Mar-05 13 Delphi Jan-05 Mar-05 14 Boston Scientific Jun-06 Jul-07 15 Northern Rock Jun-07 Jul-07 16 Lennar Jun-07 Oct-07 17 Countrywide Jun-07 Aug-07 18 Centex Aug-07 Oct-07 19 Washington Mutual Oct-07 Sep-08 20 Sprint Dec-07 Feb-08 21 Lehman Brothers Feb-08 Sep-08 22 Dexia Apr-10 Oct-11 23 Nokia Jun-11 Apr-12 24 MF Global Sep-11 Oct-11 25 Cliffs Natural Resources May-12 Sep-14 26 Dell Nov-12 Jan-13 27 Tesco Aug-14 Sep-14 28 Raiffeisen Bank International Oct-14 Jan-15 29 Freeport-McMoRan Jan-15 Aug-15 30 Teck Resources May-15 Sep-15 31 Anglo American Jun-15 Dec-15 32 ONEOK Partners Jun-15 Nov-15 33 Barrick Gold Jul-15 Aug-15 34 RWE Aug-15 Sep-15 35 Plains All American Aug-15 Nov-15 36 Volkswagen Sep-15 Sep-15 37 Williams Partners Sep-15 Nov-15
38 Vale Nov-14 Feb-16
39 Southwestern Energy Dec-14 Feb-16
40 Glencore Jul-15 Aug-15
41 Macy’s Nov-15 Feb-16
42 CF Industries Dec-15 Oct-16
43 Deutsche Bank Jan-16 Feb-16
44 Unicredit Jan-16 Feb-16
45 Noble Corp Jan-16 Jul-16
46 Banco Popular Jan-16 Jun-17
47 Teva Nov-16 Aug-17
48 AA Jan-18 Feb-18
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Risk management
and risk systems
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28
Managing risk is key to success
Source: Allianz Global Investors
Key risks in credit
Liquidity risk:
ability to sell in an orderly fashion
Market risk:
beta exposure vs benchmark
Idiosyncratic risk:
event / shock / default
Our approach
Limits on issue and issuer
concentration
Limits on smallest issues and issuers
in the market
Weighted Duration Times Spread
(WDTS) key metric of credit risk
Set and monitor WDTS vs. index
Analyse exposure by region /
industry / rating / issuer
In-depth credit analysis
Proprietary risk systems
Prudent position sizing to control
drawdown risk and ensure
diversification
Independent monitoring
Monitoring portfolio and idiosyncratic risk
Senior management notified of any divergence from thresholds
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Proprietary state of the art risk systems
Source: Allianz Global Investors
Tailor-made, exclusively designed for Fixed Income
Integrated into the investment process
Range of decision support tools within system:
Live exposure monitoring
Flexible risk environment indicators
Scenario analysis
Try-before-you-buy functionality
On demand attribution analysis
Stop-loss flags
Portfolio construction wizards for corrective actions
Powerful ex-ante and ex-post risk analytics
Integrated Portfolio Management System
Exposures
and
OMS
Compliance
Operations (STP)
Monitoring
and Reporting
Counterparties
Electronic Platforms
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Allianz Global Floating Rate Notes Plus
Disclaimer
Investing involves risk. The value of an investment and the income from it may fall as well as rise and investors might not get back the full amount invested. Investing in fixed income instruments may
expose investors to various risks, including but not limited to creditworthiness, interest rate, liquidity and restricted flexibility risks. Changes to the economic environment and market conditions may affect
these risks, resulting in an adverse effect to the value of the investment. During periods of rising nominal interest rates, the values of fixed income instruments (including short positions with respect to
fixed income instruments) are generally expected to decline. Conversely, during periods of declining interest rates, the values of these instruments are generally expected to rise. Liquidity risk may possibly
delay or prevent account withdrawals or redemptions. Allianz Global Floating Rate Notes Plus is a sub-fund of Allianz Global Investors Fund SICAV, an open-ended investment company with variable
share capital organised under the laws of Luxembourg. Past performance is not a reliable indicator of future results. If the currency in which the past performance is displayed differs from the currency of
the country in which the investor resides, then the investor should be aware that due to the exchange rate fluctuations the performance shown may be higher or lower if converted into the investor’s local
currency. This is for information only and not to be construed as a solicitation or an invitation to make an offer, to conclude a contract, or to buy or sell any securities. The products or securities described
herein may not be available for sale in all jurisdictions or to certain categories of investors. This is for distribution only as permitted by applicable law and in particular not available to residents and/or
nationals of the USA. The investment opportunities described herein do not take into account the specific investment objectives, financial situation, knowledge, experience or specific needs of any
particular person and are not guaranteed. The views and opinions expressed herein, which are subject to change without notice, are those of the issuer companies at the time of publication. The data
used is derived from various sources, and assumed to be correct and reliable, but it has not been independently verified; its accuracy or completeness is not guaranteed and no liability is assumed for any
direct or consequential losses arising from its use, unless caused by gross negligence or wilful misconduct. The conditions of any underlying offer or contract that may have been, or will be, made or
concluded, shall prevail. For a free copy of the sales prospectus, incorporation documents, daily fund prices, key investor information, latest annual and semi-annual financial reports, contact the
management company Allianz Global Investors GmbH in the fund’s country of domicile, Luxembourg, or the issuer at the address indicated below or www.allianzgi-regulatory.eu. Please read these
documents, which are solely binding, carefully before investing. This is a marketing communication issued by Allianz Global Investors GmbH, www.allianzgi.com, an investment company with limited
liability, incorporated in Germany, with its registered office at Bockenheimer Landstrasse 42-44, 60323 Frankfurt/M, registered with the local court Frankfurt/M under HRB 9340, authorised by
Bundesanstalt für Finanzdienstleistungsaufsicht (www.bafin.de). This communication has not been prepared in accordance with legal requirements designed to ensure the impartiality of investment
(strategy) recommendations and is not subject to any prohibition on dealing before publication of such recommendations. The duplication, publication, or transmission of the contents, irrespective of the
form, is not permitted; except for the case of explicit permission by Allianz Global Investors GmbH.
Source: Allianz Global Investors; data as per 30.06.2018 Internet: www.allianzgi.com