- 1. Amundi Funds Convertible Europe An attractive asset class benefiting from market uncertainty Pierre Luc Charron, Head of Convertible Bonds Alexandre Drabowicz, Investment Specialist Citywire Berlin, 16 18 November 2011 Morningstar Rating TM- OverallThis material is solely for the attention of professional investors (seemore details and definitions at the end of the presentation).
2. Table of Contents1. Convertible bonds, an attractive asset class2. Amundi process and portfolio examples3. Expertise and Outlook 2011Citywire Berlin - November 2011 - page 2 3. Convertible bonds UniverseEuropean market composition Total EMEA size: EUR 73 billion, H1 2011 issuance EUR 7.6 billion Currency: 65% is EUR, GBP is 6.4%, USD is 22.9%, other 6.2% SwedenOthersMediaAAA Auto2%11% 3%Properties6%NetherlandsFranceHealthcare 4% Travel & A23%5%9%4% Leisure 4%Austria Insurance6% 2%5% BelgiumTelecom BankBBB 4% 7% 6% 23% PortugalSwitzerland 5%Retail 4% Technology Norway 3% Spain 9%2%3% Construction 2% Financial UKServices Germany20%EnergyNon rated 4%14% 9% 49% High YieldItaly Industrial and Basic others18% 6%Resources 5%15%Country profile Sector profileCredit CharacteristicsSource : Exane, data as of 4/11/2011Citywire Berlin - November 2011 - page 3 4. An attractive asset classOver the long term, convertible bonds demonstrate their advantage as an assetclass in its own right. CBs are able to outperform with lower volatility compared to equities. 400 350 ConvertiblesEquities 300 + 197% 250 + 132% 200 + 108% 150Bonds + 56% Money Market 100 Jan-96Oct-97 Jul-99Apr-01 Jan-03 Oct-04 Jul-06Apr-08Jan-10 Oct-11EONIA Capitalis (OIS) Base 360EuroStoxx50 TRJPM EMU GBI 3-5Y TRUBS Convertible european Focus EURSource: Amundi, Bloomberg. Data as of 31/10/2011Citywire Berlin - November 2011 - page 4Past markets behaviours do not prejudge future behavioursPast performance does not prejudge future results, nor is it a guarantee of future returns.CBs (Convertible Bonds) 5. Convexity: how it really worksIn less than 2 years, we have experienced 4 large equity selloffs 4 large draw downs that lasted maximum 2 months Convertible bonds have managed to resist fairly well in each downturn Since 31/12/2009, CBs* are up +5.5%, while equities are +1.09% (as of 31/10/2011) ConvertibleEquity selloff Time Frame **Equities1bonds 21- Greek worries 19 Jan 5 Feb 2010-8.7% -2.4%2- Spain downgrade 15 Apr 25 May 2010 -13.7%-7.9%3- Japanese earthquake 17 Feb 16 Mar 20113-9.8% -2.9%4- Sovereign debt crisis 5 July 22 Sept 2011-21.7%-9.0% 1 Equities: MSCI Europe NR 2 Convertible bonds: UBS Convertible Bonds Europe Focus 3 Period defined from top to bottom of equity market over this period, culminating in Japanese earthquake in early March 2011.Source: Amundi, Bloomberg. As at 31/10/2011.Citywire Berlin - November 2011 - page 5*CBs (Convertible Bonds). ** The dates of the timeframe represent peak to high valuesPast performance does not prejudge future results, nor is it a guarantee of future returns. 6. Asset class convexity demonstration Convexity: ability to participate more in the equity upside than downside UBS CB Index:+12.79% UBS CB Index:-7.16% MSCI Europe: +18.58% MSCI Europe: -14.00% Participation: 69% Participation: 51%Dates : 31 May 2010 28 Feb 2011Dates : 28 Feb 4 Nov 201125%5%20%0%15% -5%10% -10%5%-15%0%-20%-5% -25% May-Jun- Jul-Aug-Sep- Oct-Nov- Dec-Jan- Feb-Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-111010 101010 1010 1011 11 MSCI Europe NRUBS Europe CBMSCI Europe NRUBS Europe CBSource: Amundi, Bloomberg. Data as of 4/11/2011Past markets behaviours do not prejudge future behaviours Citywire Berlin - November 2011 - page 6Past performance does not prejudge future results, nor is it a guarantee of future returns. 7. Amundi convexity management style To enhance the convexity so as to outperform the index on the upside & downside AF Conv.Europe 1: +15.75% AF Conv.Europe 1: -7.04% UBS CB Index: +12.79% UBS CB Index: -7.16% Outperformance:+2.96% Outperformance : +0.12%Dates : 31 May 2010 28 Feb 2011 Dates : 28 Feb 4 Nov 201118%2%16%14% 0%12%-2%10% -4%8% -6%6%4% -8%2% -10%0% -12%-2% May- Jun-Jul- Aug- Sep- Oct-Nov- Dec-Jan-Feb- -14%10 1010 10 10 1010 101111 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11Nov-11UBS Europe CBAm undi Funds Convertible Europe IEUBS Europe CBAm undi Funds Convertible Europe IEAmundi Funds Convertible Europe has been activated on 24/06/11 following the merger with SGAM Fund Bonds Europe Convertible Source : Amundi, Bloomberg. Data as of 4/11/2011 1 Amundi Funds Convertible Europe IE C, Net performanceCitywire Berlin - November 2011 - page 7 Past performance does not prejudge future results, nor is it a guarantee of future returns. 8. Table of Contents1. Convertible bonds, an attractive asset class2. Amundi process and portfolio examples3. Expertise and Outlook 2011Citywire Berlin - November 2011 - page 8 9. Investment PhilosophyA key focus on convexity to benefit from the evolution of a CB price according tothe price of the underlying.High Yield Bond Zone Mixed ZoneEquity Zone zoneBond Floor PremiumDominantCredit Credit & Bond Credit & Equity EquitySensitivity Amundis management style is based on a dynamic choice of traditionalconvertible bonds, synthetic convertible bonds and listed optionsGiven for illustrative purpose only Citywire Berlin - November 2011 - page 9 10. Combining several sources of performanceA convertible bond is sensitive to 4 different factors Volatility Equity Interest rates CreditOur investment process takes advantage of 4 sources of performanceSources of Performance Sensitivity to stock price: Delta EquityConvertible Bond Delta sensitivity to stock price: Gamma Option Sensitivity to the implied volatility: Vega Corporate Sensitivity to the issuer quality: CreditBondGiven for illustrative purpose only Citywire Berlin - November 2011 - page 10 11. Example of convexity management: Swatch The evolution of the price of the CB displays a very convex profile, which is the objectiveof the investment philosophy Parachute effect in a bear market and acceleration in a bull market SWATCH 2.625% 03/10 110 120% Stock 100%90 80% CB70 60% 40%50Delta20%30 0% Jan-08 May-08Sep-08 Jan-09 May-09Sep-09Jan-10 May-10Sep-10CB Price Stock Price Delta (RHS) Given for illustrative purpose onlySource: Exane Derivatives, data as of 5/10/2010Past markets behaviours do not prejudge future behaviours Citywire Berlin - November 2011 - page 11Past performance does not prejudge future results, nor is it a guarantee of future returns.RHS (Right hand scale) 12. Example of credit management: IPW To benefit from an attractive carry and from a tightening of the CB credit spread Given the low Delta (less than 20%), the price evolution of the underlying equity has onlya limited impact on the valuation of the CBInternational Power 4.75% EUR 08/150bp 100% CB 200bp 80%400bp5YR CDS 60%600bp 40%800bp 20% Delta1000bp 0%Oct-08 Feb-09 Jun-09Oct-09Feb-10Jun-10 Oct-10 CB Price Delta (RHS)5YR CDS (Inversed scale) Given for illustrative purpose onlySource: Exane Derivatives, data as of 12/10/2010Past markets behaviours do not prejudge future behavioursCitywire Berlin - November 2011 - page 12Past performance does not prejudge future results, nor is it a guarantee of future returns.RHS (Right hand scale) 13. Examples of Ratchet clauses: Bulgari & Autonomy Ratchet clause to protect convertible investors in case of M&A* Upon announcement, this clause triggers a revision in the conversion ratio Bulgari takeover by LVMH in March 2011 Autonomy takeover by HP in August 2011300 2800170CB +70%2600160 Stock +70%250 2400150Parity +60%CB +40%2200140200 20001301800120150 16001101400100100 1200 90Jul-10Sep-10 Nov-10Jan-11 Mar-11 23-Aug-10 21-Nov-10 19-Feb-11 20-May-11 18-Aug-11CB ParityBulgari 5.375% 2014 AU/ LN Equity AULN 3.25 03/04/15 CorpTwo examples demonstrating the attractiveness of CBs that offer this protectionGiven for illustrative purpose onlySource: Amundi, Bloomberg, data as of 30/09/2011Past markets behaviours do not prejudge future behavioursCitywire Berlin - November 2011 - page 13Past performance does not prejudge future results, nor is it a guarantee of future returns.*M&A (Merger and Acquisitions) 14. Example of listed options: Deutsche Post Instead of just buying an expensive CB outright in order to improve convexity IV* of the CB at 37% is expensive vs. the 9 month IV* of the underlying option at 22% Feb 15 - May 31, 2011 (CB Theoretical Delta = 40% ) Performance of equity: +0.16% vs. performance of CB: -1.30% Performance of customized strategy of options + CB: +1.10%KFW/Deutsche Post 1.5% 2014 in March 2011 KFW/Deutsche Post 1.5% 2014 in May 2011 Given for illustrative purpose onlySource: Amundi, Exane. Example from 30/05/2011Past markets behaviours do not prejudge future behaviours Citywire Berlin - November 2011 - page 14Past performance does not prejudge future results, nor is it a guarantee of future returns.* IV: Implied Volatility 15. Enhancing Convertible Profile by using Listed OptionsStrategy switch on KFW / Deutsche Post 1.5% 2014 : Switch to an option strategy on Deutsche Post with an equivalent equity sensitivity Selling the convertible bond with an implied volatility of 37% Buying options with an implied volatility of 22% Objective: reduce valuation risk In case of volatility converging: 37%-22% = 15 volatility points potential tightening With a vega of 0.4 (volatility sensitivity) = potential of a 6% move on the price of the CB Objective: increase the asymmetrical profile Maintain the convexity and increase the delta sensitivity should the underlying stock continue to perform Profils de convexit Convertible / Options Convexity profile: CB vs. option strategy Evolution of Delta (equity sensitivity) Evolution de la sensibilit action (delta) 30.00100% Convertible 25.00 Options80% s en sib lit act io n Equity sensitivity 20.00