em corp-debt-overview

Strategic Income

FOR INVESTMENT PROFESSIONAL USE ONLY. NOT FOR PUBLIC VIEWING OR DISTRIBUTION.

Forward EM Corporate Debt Fund 2Q /2012

FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012 2

Table of Contents

I. Forward EM Corporate Debt Fund Overview

II. A New Approach to Corporate Credit Management

III. EM Corporate Debt Market Overview

IV. Historical Performance & Risk

V. SW Philosophy, Process & Team

VI. Forward

Presenter

Presentation Notes

Overview of Portfolio Manager credentials and experience.


Forward EM Corporate Debt Fund

There is no guarantee that the Fund will achieve its objective

Fund Overview

Category Emerging market corporate fixed income

Objective The Fund seeks to achieve high total return (capital appreciation and income)

Inception Date October 5, 2007

Tickers FFXRX – Investor Class FFXIX – Institutional Class FFXCX – Class C

Benchmark Credit Suisse Emerging Market Corporate Index


Forward EM Corporate Debt Fund

As of June 29, 2011 Current and future portfolio holdings are subject to change

Fund Statistics

Duration 4.96

Top 5 Country Weights Mexico (16.4%), Russia (13.6%), South Korea (7.7%), Brazil (7.6%), Peru (7.2%)

Top 3 Sector Weights Financial (30.5%), Energy (20%), Communications (11.2%)


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VI. Forward

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Presentation Notes


FOR INVESTMENT PROFESSIONAL USE ONLY. Forward EM Corporate Debt Fund | 2Q/2012

The Fixed Income “Mis-Allocation” Problem

6

Traditional bond allocations are to

countries that have:

· High leverage and external debt balances · Low yields · Slowest economic growth · Least ability to repay debts

Potential Solutions: · Allocate to countries with higher economic growth rates · Refine asset allocation · Invest using new methods and alternative strategies

Presenter

Presentation Notes



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Potential advantages of EM Corporate Debt

Source: JP Morgan, Bloomberg, Jan ’94 – Dec ’11. Sharpe ratios were calculated based on the annualized returns divided by the annualized volatilities over the state time period. Past performance does not guarantee future results.

Compelling Yields

Yields on EM corporate debt may have higher returns than EM

equities and may offer more yield per unit of duration than EM

sovereign or US corporate debt.

New Asset Class

Emerging market corporates are under-researched,

under-followed and under-appreciated.

Supportive Backdrop

EM corporate debt may offer investors strong bondholder

protections along with exposure to rapid economic growth in emerging

market countries.

Presenter

Presentation Notes

Discussion of Fund’s investment philosophy and approach.


EM Corporate Debt vs. Other Asset Classes Various factors of the EM corporate debt market make it an attractive addition to the institutional investors’ portfolio

EM Corporate Debt

EM Sovereign Debt

EM Equity

U.S. High Yield

Issued primarily in USD and under U.S. or UK law:

Highest Sharpe Ratio:

Least research coverage:

Fewest dedicated mandates:

Generally secured by assets and/or owner guarantees:


The Rise of EM Corporate Debt

Factors Contributing to the Rise of EM Corporate Debt:

· Transformation accompanied by globalization and the economic growth of developing markets

· Capital needs in EM countries and the trend toward privatizations

· Movement away from fixed exchange rates by many EM countries

· Net external creditor status by many EM economies

· Rise of a middle class in EM countries

· Many upgrades to investment grade status for both EM sovereign and corporate debt

Sovereign debt crises during the 1990s marked a transformation in EM fiscal policies and set the stage for more balanced private sector growth in EM

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The Evolution of EM Opportunity Set

Source: Credit Suisse, Bloomberg Data is as of June 29, 2012

The emerging market opportunity set has changed—the future is EM corporate debt.

PAST

EMERGING STOCKS EMERGING SOVEREIGN DEBT

FUTURE

EMERGING CORPORATE DEBT

Amount Outstanding

EM Stocks EM Sovereign Debt EM Corporate Debt

$6.88T $337B $714B

Presenter

Presentation Notes

Discussion of Portfolio Management Team’s respective credentials and responsibilities.


EM Corporate Debt Universe

Source: Credit Suisse As of June 29, 2012

Credit Suisse publishes an emerging market corporate bond index comprised of dollar-denominated corporate debt in global emerging markets.

Credit Suisse EM Corporate Index

Number of issues 1,073

Number of issuers 521

Market value outstanding $707.6 Billion

Countries 42

Yield 5.32%

Duration 4.98

Top 5 Sectors 1. Financial (33.6%)

2. Energy (24.2%)

3. Basic Materials (9.5%)

4. Utilities (7.8%)

5. Communications (7.3%)


EM Sovereign vs. EM Corporate Debt

Sources: IMF, Credit Suisse. 2011 GDP data are based on IMF Estimates. As of June 29, 2012.

The EM corporate debt market has grown sharply since 2001 and EM economies have become a larger percentage of World GDP

Market Value Outstanding

In b

illio

ns, U

SD

0%

5%

10%

15%

20%

25%

30%

35%

40%

0

100

200

300

400

500

600

700

800

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

CS Sovereign Bond Index

CS EM Corporate Index

EM GDP as a percentage of World GDP (RHS)


Correlations

14

Source: Morningstar from 01/01/02 – 06/29/12

Correlation of Monthly Returns November 1, 2002 to June 29, 2012

Index 1 2 3 4 5 6

1 CS EM Corporate Bond 1.00

2 BarCap US Agg Bond 0.56 1.00

3 BarCap US Corporate High Yield 0.78 0.21 1.00

4 S&P 500 0.56 0.02 0.72 1.00

5 MSCI EM GR 0.64 0.08 0.71 0.82 1.00

6 S&P GSCI 0.39 -0.02 0.36 0.40 0.53 1.00


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EM Debt vs. EM Equity Performance

Source: Credit Suisse, Bloomberg, November 2001 (Inception) to June 29 2012. Sharpe ratios were calculated based on the annualized returns divided by the annualized volatilities over the state time period. Past performance does not guarantee future results.

EM debt has performed better than EM equity from a risk-adjusted standpoint since 1994

Sharpe Ratios: EM Debt vs. EM Equity

CS EMCI MSCI EM

1 year -0.85 (0.53)

3 year 2.06 0.44

5 year 0.68 0.01

10 year 1.02 0.58

Since Inception 0.95 0.64

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EM Corporate Debt Yields

Source: Credit Suisse As of June 13, 2012 Past performance does not guarantee future results.

Credit Suisse EM Corporate Index BB & B Historical Yields 11/30/2001 – 06/13/2012

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

EMCI Index BB Bucket Yield To Maturity

EMCI Index B Bucket Yield To Maturity

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EM Assets in Market Volatility

Sources: Credit Suisse, Bloomberg. The time periods above were selected based on total returns for all three indices being negative for at least 2 consecutive months. *During August 2011, the SBI Index returned 0.38% while CS EM Corporate Index and MSCI EM Equity Index had negative returns but this period was included for comparison purposes. Past performance does not guarantee future results.

Since 2001, EM corporate debt has generally sold off less than EM sovereign debt and EM equities during periods of heightened volatility

Total Return in Market Volatility

CS EM Corporate Index

CS Sovereign Bond Index

MSCI EM Equity Index

May 02 – Jul 02 -3.2% -9.2% -15.9%

Apr 04 – May 04 -4.4% -6.6% -10.0%

May 06 – Jun 06 -0.7% -1.9% -10.6%

Sep 08 – Oct 08 -24.1% -19.7% -40.1%

Aug 11 – Sep 11* -5.3% -4.4% -22.2%


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SW Philosophy

The best opportunities exist in the least developed markets

· We believe emerging market credit opportunities outnumber those in developed credit markets

· We believe emerging market corporates are under-researched, under-followed and under-appreciated

Fundamental credit analysis is necessary but not sufficient; a multifaceted approach works best

· We believe bonds often trade on factors unrelated to fundamentals

· Systemic risks to risk assets have risen since 2008

Credit risk can and should be hedged

· We believe “risk-managed” shorts significantly mitigate tail risk

· We believe innovative hedges are necessary

A different approach to credit management

Presenter

Presentation Notes



SW Investment Process

21

· Macro country and industry views

· Identify opportunities in dislocated market segments

· Utilize extensive contacts in global credit network

Thematic Macro

Orientation

· Analyze asset value, debt structure and free cash flow generation

· Evaluate business model and competitive landscape

· Create pro forma debt structure and assess liquidation value

Fundamental Analysis

· Critical as to purchase timing and entry price

· Identify type of holders to assess potential magnitude of forced selling or buying

· Await technical opportunities to purchase/short credit bonds significantly below/above fundamental value

Technical Analysis

· CIO and portfolio manager must agree on all purchases and sales

· Establish price and position size targets

· Scale into positions based on dealer positioning and forced sellers or buyers

Invest

· Understand catalysts and exit opportunities

· Focus on company news releases, regulatory filings and bankruptcy court recordings

· Reassess return potential in relation to other opportunities

Monitor and Harvest

· Which factors – outside credit fundamentals – could cause a significant shock to valuations?

· Which securities/credits are likely to have an intuitive and opposite reaction to such an event?

· Which of the hedges has the highest cost benefit ratio in the event of a tail shock?

Risk Management


SW Portfolio Construction How does investment process feed into portfolio construction?

Our portfolio comprises of four types of trades:

· Based on fundamental analysis and focused on carry

· Target allocation: 30% - 60%

· Based on special situations and focused on principal appreciation


· Based on technical analysis and focused on market inefficiencies


· Based on macro analysis and focused on systemic risk factors


Yield

Event-Driven

Trading

Hedging


SW Asset Management

· Decades of institutional investment, operational and business management experience

· Complementary buy side investment backgrounds in EM and developed market credit

· Five-year track record and demonstrated ability to navigate various credit markets

· Experience successfully managing credit portfolios in crisis periods (2001/2002, 2007/2008)

· Significant business commitment by managing partners

Why SW?

Presenter

Presentation Notes



Investment Team

24

*David C. Hinman and Raymond T. Zucaro have earned the right to use the Chartered Financial Analyst designation. CFA Institute marks are trademarks owned by the CFA Institute.

David C. Hinman, CFA*

Managing Principal Chief Investment Officer

David has over twenty years of experience investing in global credit strategies. Prior to co-founding SW Asset Management LLC, David was Global Head of Credit at Drake Management in New York where he oversaw $5Bn in credit assets with hedge funds and various f ixed-income portfolios. Prior to Drake, David was a Portfolio Manager at Ares Management, based in Los Angeles, where he managed credit-based portfolios, including the Ares Total Value Fund, an absolute-return, long/short credit hedge fund.

Prior to joining Ares Management, David was a Portfolio Manager at Pacific Investment Management Company (“PIMCO”) in Newport Beach, California. During his ten-year tenure at PIMCO, David managed a variety of credit-oriented portfolios, including several CDOs and credit-derivative products, as well as several public funds, including the PIMCO Corporate Opportunity Fund (NYSE: PTY), the Corporate Income Fund (PCN) and the Dublin-registered PIMCO Global Credit Fund. In addition, David held the lead analyst position for several industry sectors. David was formerly a member of the High Yield Syndicate and Investment Banking Group at Merril l Lynch & Co. in New York, and began his professional career as a credit analyst with First Union (now Wells Fargo) in Charlotte, North Carolina. David has l ived in both South Korea and Thailand.

David holds a Masters of Business Administration degree in Finance and Accounting from the Wharton School of Business of the University of Pennsylvania and a Bachelor of Science degree in Finance from the University of Alabama, graduating with High Honors. David also earned the Chartered Financial Analyst designation.

Prior to co-founding SW Asset Management LLC, Ray was a Portfolio Manager at Drake Management where he concentrated on investment opportunities in Emerging Markets. Prior to joining Drake Management, Ray was a Senior Investment Analyst for two years at INTL Consil ium in Florida. In this capacity, he was the Portfolio Manager responsible for researching and recommending corporate fixed-income and equity securities across two absolute return vehicles and two benchmarked long-only accounts. Ray was also a key participant in the structuring and execution of private placements in EMEA and Latin America.

Previously, Ray was a Corporate Research Analyst working with the same team at Standard (Bank) Asset Management in Florida. During his four years at Standard, Ray sourced, analyzed and managed a portfolio of traditional and alternative emerging market investment vehicles totaling $2 bil l ion. He started his career as a corporate analyst at Americas Trust Bank (ATB) in Florida evaluating global credit investment opportunities as part of the portfolio management team.

Ray received a Masters of Business Administration degree with a concentration in International Business Administration and graduated with a Bachelor of Arts degree in Spanish and Psychology from Temple University graduating with High Honors. Ray also earned the Chartered Financial Analyst designation. Ray is f luent in Spanish and Portuguese and is currently studying Russian. As part of Ray’s due dil igence he has traveled to the following countries: Argentina, Azerbaijan, Belarus, Brazil, China, Colombia, Dominican Republic, Ecuador, Ghana, Kazakhstan, Kenya, Malaysia, Malawi, Mexico, Nigeria, Paraguay, Peru, Phil ippines, Russia, South Africa, Tanzania, Uganda, Ukraine and Venezuela.

Raymond T. Zucaro, CFA*

Managing Principal Portfolio Manager


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VI. Forward

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About Forward

26

The world has changed, leading investors to seek new strategies that better fit an evolving global climate. Forward's investment solutions are built around the outcomes we believe investors need to be pursuing – non-correlated return, investment income, global exposure and diversification. With a propensity for unbounded thinking, we focus especially on developing innovative alternative strategies that may help investors build all-weather portfolios. An independent, privately held firm founded in 1998, Forward (Forward Management, LLC) is the advisor to the Forward Funds. As of March 31, 2012, we manage more than $5.2 billion in a diverse product set offered to individual investors, financial advisors and institutions.

The New Direction of Investing

Presenter

Presentation Notes

Important Information presented in accordance with regulatory requirements.


Definitions The Credit Suisse Emerging Market Corporate Bond Index consists of U.S. dollar-denominated fixed income issues from Latin America, Eastern Europe and Asia.

The MSCI Emerging Markets Index is a free float-adjusted market capitalization index that is designed to measure equity market performance in the global emerging markets.

One cannot directly invest in an index.


Important Information Please consider the objectives, risks, charges and expenses carefully before investing in the fund. A prospectus with this and other information may be obtained by calling (888) 312-4100 or by visiting www.forwardinvesting.com. It should be read carefully before investing. RISKS There are risks involved with investing, including loss of principal. Past performance does not guarantee future results, share prices will fluctuate, and you may have a gain or loss when you redeem shares.

Derivative instruments involve risks different from those associated with investing directly in securities and may cause, among other things, increased volatility and transaction costs or a fund to lose more than the amount invested.

Investing in Exchange-Traded Funds (ETFs) will subject a fund to substantially the same risks as those associated with the direct ownership of the securities or other property held by the ETFs.

Foreign securities, especially emerging or frontier markets, will involve additional risks including exchange rate fluctuations, social and political instability, less liquidity, greater volatility and less regulation.

Investing in lower-rated (“high yield”) debt securities involves special risks in addition to those associated with investments in higher-rated debt securities, including a high degree of credit risk.

Investing in a non-diversified fund involves the risk of greater price fluctuation than a more diversified portfolio.

Performance figures and other portfolio data shown for period prior to February 14, 2011, do not reflect the current sub-advisor’s performance or strategy.

Forward Funds are distributed by Forward Securities, LLC. Not FDIC Insured | No Bank Guarantee | May Lose Value FWD004127 103112

http://www.forwardinvesting.com/

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