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Investing at the end of the Credit Cycle For professional investors use only and not for use in public
Ewout van Schaick – Head of Multi Asset
GIS Zurich Conference, January 16th, 2018
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Ongoing recovery, but without further acceleration
Positive economic momentum Economic Data Surprises
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40
45
50
55
60
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
Global PMI Manufacturing
-50
-40
-30
-20
-10
0
10
20
30
-10
-5
0
5
10
15
20
25
30
35
Dez.
15
Jan.
16Fe
b.16
Mrz
.16
Apr.1
6
Mai
.16
Jun.
16
Jul.1
6
Aug.
16Se
p.16
Okt
.16
Nov
.16
Dez.
16
Jan.
17Fe
b.17
Mrz
.17
Apr.1
7
Mai
.17
Jun.
17
Jul.1
7
US EU Japan UK EM (R Axis)
Extension of the business cycle
Source: Thompson Reuters Datastream, NN Investment Partners
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High Business and Consumer Confidence Back to pre-crisis levels
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Inflation trends Continues below Central Bank’s targets
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Anticipating the next move by key Central Banks GDP growth and low inflation support a gradual policy shift
0
100
200
300
400
500
600
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Fed ECB BOJ
Total CB Balance Sheets
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Strong Labour Markets Falling unemployment rates, positive job creation
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So far a favorable scenario for bond markets The search for yield continues
Source: Thomson Reuters Datastream, NN Investment Partners
FI Returns in LC Since 2016
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So far a favourable scenario for bond markets The search for yield continued in 2017
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Government Bond Markets Low 10yr Treasury and Bund yields, normal German yield curve
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Corporate Bond Markets Spreads are tight versus historic levels
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Emerging Market Debt Spreads are tight versus historic levels
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Credit Cycles Are Not Synchronized
Latest economic data keeps credit in the ‘sweet spot’
The Credit Cycle Overall climate still supportive for US & European Credit markets
Source: Morgan Stanley
Repair Balance sheet repair, debt repayment, focus on cash generation and survival
Downturn Recession, Attempts to delever fail given falling asset prices
Low Growth
Recovery Restructuring increases margins,
FCF growing, leverage falling
Expansion Leverage rising intentionally,
speculative corporate activity
High Growth
Falling Leverage
Rising Leverage
EU
The Credit Cycle
US
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Market Technical Outlook Big Tankers changing course
Gradual withdrawal of central banks could cause negative market technicals
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Fixed income’s role in portfolio might change Challenges and potential solutions
Challenges Potential solutions
• Low level of Yield
• Risk of rising core interest rates
• Generate adequate income
• Increased market volatility
• No longer diversifier for risky assets
• Increase opportunity set
• Preference for low duration assets
• Distinct risk and illiquidity premium
• Flexible fixed income solutions
• Risk managed absolute return
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Idea 1: High Yield and Emerging Markets Debt Higher yields or lower duration
High Yield
• Benefits from a stronger growth environment
• Correlated with equities, lower duration
• Benefits from US tax plan and commodity prices
Emerging Markets bonds
• Benefits in a continuation of the search for yield
• More sensitive to US interest rates
• Frontier markets offer exposure to growth
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Idea 2: NN (L) First Class Yield Opportunities Increase opportunity Set & Flexible allocation
• Flexible and risk driven allocation to the most attractive spread market segments
• Full synergy of NN IP expert teams
Source: NN IP, Multi-Asset, Data as of: December 31st, 2017. Yield of portfolio includes derivatives
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Idea 3: Alternative Credit Harvesting the illiquidity premium
Government + Covered Bonds/ RMBS + Credit + Emerging Market
Debt +
Government-related Loans Rating: AAA to AA Tenor: 2-50 years Return: swap + 25-50 Export Credit Agency Loans Rating: AAA to AA Tenor: 5-25 years Return: swap + 40-100 (floating rate)
Corporate Debt Rating: A to BB Tenor: 3-15 years Return: swap + 75-500 Commercial Real Estate Loans Rating: BBB- to A+ Tenor: 3-10 years Return: Euribor + 130-250 (floating rate) Infrastructure Debt Rating: BBB- to A Tenor: 5-30 years Return: swap + 150-250
NN Dutch Residential Mortgage Fund Rating: AAA to A Tenor: ~20-30 years Duration: ~7 years Return: swap + 170
NN – FMO Emerging Markets Loans Rating: BB to B- Tenor: 2-15 years Return: USD Libor + 4-5%
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NN Investment Partners Switzerland Ltd.
Alfonso Papa, CEFA, CAIA
CEO Switzerland
+41 58 252 55 55
Christoph Tanner, CIIA
Senior Relationship Manager [email protected]
+41 58 252 55 75
Monika Waidacher Relationship Manager [email protected]
+41 58 252 55 85
Class Investment funds and strategies ISIN Valor Se
lect
ed cr
edit
stra
tegi
es NN (L) Asian Debt (Hard Currency) - R Cap EUR LU0529381807 11552627
NN (L) Emerging Markets Debt (Hard Currency) - R Cap USD LU0555022697 11932764
NN (L) Frontier Markets Debt (Hard Currency) - R Cap CHF (hedged i) LU1703070208 38541749
NN (L) Flex - Senior Loans - R Cap EUR* LU1626186016 36967359
NN (L) Flex - European ABS - I Cap EUR* LU1052150023 24068154
NN (L) Global Convertible Opportunities - R Cap USD LU0555020725 11932562
NN (L) European High Yield - R Cap EUR LU1165177285 26526276
NN (L) Global High Yield - R Cap USD (hedged iii) LU1703073210 38542792
Private Debt Export Credit Agency Loans, Infrastructure Debt, Commercial Real Estate Loans, Corporate Credit Emerging Market Loans
*for qualified investors only, please refer to the NN (L) Flex disclaimer
Strategy selection and local contact
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Disclaimer
This presentation is provided for information purposes only and does not constitute investment advice. It does neither constitute an advertisement or a recommendation nor an offer or solicitation to buy or sell funds, to effect any transaction or to enter into any legal relations and it does not release the recipient from exercising his/her own judgement. The funds mentioned may not be suitable for all investors. Investors should take advice from their own independent advisors concerning their financial situation and tax obligations before making investment decisions. Investment or other decisions should not be made on the basis of this presentation. Investors should study the corresponding fund documents such as the prospectus, the key investor information documents (KIIDs), as well as the annual and semi-annual reports, in order to familiarize themselves with the specific risks associated with an investment in the fund. Although reasonable care has been taken to ensure that the information is accurate, correct and complete, no guarantee, warranty or representation, express or implied, is given to the accuracy, timeliness, suitability, correctness or completeness of the content of this document and neither NN Investment Partners Holdings N.V., its subsidiaries nor any other company or unit belonging to NN Group, nor any of its officers, directors or employees accept any liability for losses which might arise from making use of the information in this document and hereby expressly disclaims, to the fullest extent permitted by applicable law and/or regulation, all warranties, express, statutory or implied, regarding the information in this document and any results to be obtained from the use of this document and its contents, including but not limited to all warranties of merchantability, non-infringement, fitness for a particular purpose or use and all warranties arising from course of performance. Any information in this document may be subject to change or update without notice. The information in this presentation is intended for investors with residence/domicile in Switzerland. The information is expressly not intended for persons who, due to their nationality and/or place of residence or domicile, are not permitted access to such information under local laws or regulations. The funds are not registered in the United States of America and its territories and may therefore not be offered or sold to U.S. persons. The fund has been approved by the Commission de Surveillance du Secteur Financier in Luxembourg and has been approved for distribution in or from Switzerland. NN Investment Partners Switzerland Ltd., Zurich, is the representative in Switzerland and NPB New Private Bank Ltd, Zurich, is the paying agent in Switzerland. The prospectus, the key investor information documents (KIIDs), the articles as well as the annual and semi-annual reports may be obtained free of charge from the representative in Switzerland. Historic performance, returns and financial market scenarios are no guarantee for future performance or returns. Each investment involves risks, in particular with regard to fluctuations in value and return, including the potential loss of the capital invested. Performance indications do not consider commissions levied at subscription and/or redemption. In connection with the fund trail fees and/or distribution remuneration may be paid. Fund specific costs and risks are detailed in the prospectus.
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Disclaimer – NN (L) Flex Senior Loans This presentation is exclusively intended for and directed to qualified investors as defined in the Federal Act on Collective Investment Schemes (CISA) and in the Federal Ordinance on Collective Investment Schemes (CISO) and may exclusively be distributed/made available to such qualified investors. The Luxembourg domiciled fund(s) mentioned in this presentation has/have not been approved for distribution to non-qualified investors in or from Switzerland and are not subject to the supervision of the Swiss Financial Market Supervisory Authority FINMA. In accordance with Art. 120 Para. 4 CISA a representative and paying agent in Switzerland have been appointed. NN Investment Partners Switzerland Ltd, Schneckenmannstrasse 25, 8044 Zurich, is the Swiss Representative and NPB New Private Bank Ltd, Limmatquai 1, 8022 Zurich, is the Swiss Paying Agent. Qualified investors may obtain the prospectus for Switzerland, the articles as well as the financial reports free of charge from the Swiss Representative. The courts competent at the registered office of the Swiss Representative being the venue shall have jurisdiction in respect of all disputes arising in connection with shares of the funds distributed to qualified investors in Switzerland. This presentation is provided for information purposes only and does not constitute investment advice. It does neither constitute an advertisement or a recommendation nor an offer or solicitation to buy or sell funds, to effect any transaction or to enter into any legal relations and it does not release the recipient from exercising his/her own judgement. The fund(s) mentioned may not be suitable for all investors. Investors should take advice from their own independent advisors concerning their financial situation and tax obligations before making investment decisions. Investment or other decisions should not be made on the basis of this presentation. Investors should study the corresponding fund documents such as the prospectus and the financial reports in order to familiarise themselves with the specific risks associated with an investment in the fund(s). Although reasonable care has been taken to ensure that the information is accurate, correct and complete, no guarantee, warranty or representation, express or implied, is given to the accuracy, timeliness, suitability, correctness or completeness of the content of this document and neither NN Investment Partners Holding N.V., its subsidiaries nor any other company or unit belonging to NN Group, nor any of its officers, directors or employees accept any liability for losses which might arise from making use of the information in this document and hereby expressly disclaims, to the fullest extent permitted by applicable law and/or regulation, all warranties, express, statutory or implied, regarding the information in this document and any results to be obtained from the use of this document and its contents, including but not limited to all warranties of merchantability, non-infringement, fitness for a particular purpose or use and all warranties arising from course of performance. Any information in this document may be subject to change or update without notice.
The information in this presentation is exclusively intended for qualified investors with residence/domicile in Switzerland. The information is expressly not intended for persons who, due to their nationality and/or place of residence or domicile, are not permitted access to such information under local laws or regulations. The fund(s) is/are not registered in the United States of America and its territories and may therefore not be offered or sold to U.S. persons. Historic performance, returns and financial market scenarios are no guarantee for future performance or returns. Each investment involves risks, in particular with regard to fluctuations in value and return, including the potential loss of the capital invested. Performance indications do not consider commissions levied at subscription and/or redemption. In connection with the fund retrocessions may in accordance with the prospectus for Switzerland be paid. Fund specific costs and risks are detailed in the prospectus.
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