Amundi Funds Convertible Europe An attractive asset class benefiting from market uncertainty
This material is solely for the attention of “professional” investors (see more details and definitions at the end of the presentation).
Pierre Luc Charron, Head of Convertible BondsAlexandre Drabowicz, Investment Specialist
Citywire Berlin, 16 – 18 November 2011
Morningstar Rating TM- Overall
Citywire Berlin - November 2011 - page 2
1. Convertible bonds, an attractive asset class
2. Amundi process and portfolio examples
3. Expertise and Outlook 2011
Table of Contents
Citywire Berlin - November 2011 - page 3
Convertible bonds Universe
Source : Exane, data as of 4/11/2011
Country profile Sector profile Credit Characteristics
European 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%
France23%
Switzerland5%
Norway3%
Austria2%
Netherlands4%
Sweden2%
Others11%
Italy6%
UK20%Germany
14%
Spain2%
Portugal4%
Belgium4%
Technology9%
Energy9%
Insurance5%
Healthcare5%
Auto4%
Telecom7%
Media3%
Bank6%
Basic Resources
15%
Financial Services
4%
Construction2%
Industrial and others
5%
Retail3%
Properties9% Travel &
Leisure6%
BBB23%
Non rated49%
AAA6%
A4%
High Yield18%
Citywire Berlin - November 2011 - page 4
100
150
200
250
300
350
400
Jan-96 Oct-97 Jul-99 Apr-01 Jan-03 Oct-04 Jul-06 Apr-08 Jan-10 Oct-11
EONIA Capitalisé (OIS) Base 360 EuroStoxx50 TRJPM EMU GBI 3-5Y € TR UBS Convertible european Focus EUR
An attractive asset class
Source: Amundi, Bloomberg. Data as of 31/10/2011Past markets behaviours do not prejudge future behavioursPast performance does not prejudge future results, nor is it a guarantee of future returns.CBs (Convertible Bonds)
Over the long term, convertible bonds demonstrate their advantage as an asset class in its own right.
CBs are able to outperform with lower volatility compared to equities.
Bonds
EquitiesConvertibles
Money Market
+ 108%
+ 197%
+ 132%
+ 56%
Citywire Berlin - November 2011 - page 5
Convexity: how it really works
1 Equities: MSCI Europe NR2 Convertible bonds: UBS Convertible Bonds Europe Focus3 Period defined from top to bottom of equity market over this period, culminating in Japanese earthquake in early March 2011.
In 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)
Equity selloff Time Frame ** Equities1 Convertible bonds 2
1- 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%
Source: Amundi, Bloomberg. As at 31/10/2011. *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.
Citywire Berlin - November 2011 - page 6
-25%
-20%
-15%
-10%
-5%
0%
5%
Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11
MSCI Europe NR UBS Europe CB
-5%
0%
5%
10%
15%
20%
25%
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
MSCI Europe NR UBS Europe CB
Asset class convexity demonstration
Source: Amundi, Bloomberg. Data as of 4/11/2011Past markets behaviours do not prejudge future behavioursPast performance does not prejudge future results, nor is it a guarantee of future returns.
Convexity: ability to participate more in the equity upside than downside
UBS CB Index: +12.79%
MSCI Europe: +18.58%
Participation: 69%
UBS CB Index: -7.16%
MSCI Europe: -14.00%
Participation: 51%
Dates : 31 May 2010 – 28 Feb 2011 Dates : 28 Feb – 4 Nov 2011
Citywire Berlin - November 2011 - page 7
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
May-10
Jun-10
Jul-10
Aug-10
Sep-10
Oct-10
Nov-10
Dec-10
Jan-11
Feb-11
UBS Europe CB Amundi Funds Convertible Europe IE
-14%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11
UBS Europe CB Amundi Funds Convertible Europe IE
Amundi convexity management style
Source : Amundi, Bloomberg. Data as of 4/11/20111 Amundi Funds Convertible Europe – IE C, Net performance Past performance does not prejudge future results, nor is it a guarantee of future returns.
To enhance the convexity so as to outperform the index on the upside & downside
AF Conv.Europe 1: +15.75%
UBS CB Index: +12.79%
Outperformance: +2.96%
AF Conv.Europe 1: -7.04%
UBS CB Index: -7.16%
Outperformance : +0.12%
Dates : 31 May 2010 – 28 Feb 2011 Dates : 28 Feb – 4 Nov 2011
Amundi Funds Convertible Europe has been activated on 24/06/11 following the merger with SGAM Fund Bonds Europe Convertible
Citywire Berlin - November 2011 - page 8
1. Convertible bonds, an attractive asset class
2. Amundi process and portfolio examples
3. Expertise and Outlook 2011
Table of Contents
Citywire Berlin - November 2011 - page 9
A key focus on convexity to benefit from the evolution of a CB price according to the price of the underlying.
Investment Philosophy
Mixed ZoneBond ZoneHigh Yield zone
Bond Floor
Premium
Dominant Sensitivity
Credit Credit & Bond Credit & Equity Equity
Equity Zone
Given for illustrative purpose only
Amundi’s management style is based on a dynamic choice of traditional convertible bonds, synthetic convertible bonds and listed options
Citywire Berlin - November 2011 - page 10
Combining several sources of performance
Sensitivity to the implied volatility: Vega
Sensitivity to stock price: Delta
Con
verti
ble
Bon
d
Sour
ces
of P
erfo
rman
ce
Equity
Option
Corporate
Bond Sensitivity to the issuer quality: Credit
Delta sensitivity to stock price: Gamma
Our investment process takes advantage of 4 sources of performance
A convertible bond is sensitive to 4 different factors
Volatility Equity Interest rates Credit
Given for illustrative purpose only
Citywire Berlin - November 2011 - page 11
SWATCH 2.625% 03/10
30
50
70
90
110
Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-100%
20%
40%
60%
80%
100%
120%
CB Price Stock Price Delta (RHS)
Example of convexity management: Swatch
Source: Exane Derivatives, data as of 5/10/2010Past markets behaviours do not prejudge future behavioursPast performance does not prejudge future results, nor is it a guarantee of future returns.RHS (Right hand scale)
The evolution of the price of the CB displays a very convex profile, which is the objective of the investment philosophy
“Parachute” effect in a bear market and acceleration in a bull market
CB
Stock
Delta
Given for illustrative purpose only
Citywire Berlin - November 2011 - page 12
Example of credit management: IPW
Source: Exane Derivatives, data as of 12/10/2010Past markets behaviours do not prejudge future behavioursPast performance does not prejudge future results, nor is it a guarantee of future returns.RHS (Right hand scale)
To benefit from an attractive carry and from a tightening of the CB credit spreadGiven the low Delta (less than 20%), the price evolution of the underlying equity has only
a limited impact on the valuation of the CB
CB
5YR CDS
Delta
International Power 4.75% EUR 08/15
0%
20%
40%
60%
80%
100%
Oct-08 Feb-09 Jun-09 Oct-09 Feb-10 Jun-10 Oct-10
0bp
200bp
400bp
600bp
800bp
1000bp
CB Price Delta 5YR CDS (Inversed scale)(RHS) Given for illustrative purpose only
Citywire Berlin - November 2011 - page 13
1200
1400
1600
1800
2000
2200
2400
2600
2800
23-Aug-10 21-Nov-10 19-Feb-11 20-May-11 18-Aug-1190
100
110
120
130
140
150
160
170
AU/ LN Equity AULN 3.25 03/04/15 Corp
Examples of Ratchet clauses: Bulgari & Autonomy
Source: Amundi, Bloomberg, data as of 30/09/2011Past markets behaviours do not prejudge future behavioursPast performance does not prejudge future results, nor is it a guarantee of future returns.*M&A (Merger and Acquisitions)
Ratchet clause to protect convertible investors in case of M&A*Upon announcement, this clause triggers a revision in the conversion ratio
CB +40%
Stock +70%
100
150
200
250
300
Jul-10 Sep-10 Nov-10 Jan-11 Mar-11
CB Parity Bulgari 5.375% 2014
CB +70%
Parity +60%
Bulgari takeover by LVMH in March 2011 Autonomy takeover by HP in August 2011
Two examples demonstrating the attractiveness of CBs that offer this protectionGiven for illustrative purpose only
Citywire Berlin - November 2011 - page 14
Example of listed options: Deutsche Post
Source: Amundi, Exane. Example from 30/05/2011Past markets behaviours do not prejudge future behavioursPast performance does not prejudge future results, nor is it a guarantee of future returns.* IV: Implied Volatility
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 only
Citywire Berlin - November 2011 - page 15
Profils de convexité Convertible / Options
-10.00-5.000.005.00
10.0015.0020.0025.0030.00
11.5 12 12.5 13 13.5 14 14.5 15 15.5 16
cours de l'action
P&L
ConvertibleOptions
Evolution de la sensibilité action (delta)
0%
20%
40%
60%
80%
100%
11.75 12.25 12.75 13.25 13.75 14.25 14.75 15.25 15.75
cours de l'action
sens
iblit
é ac
tion
Delta CB
Delta Options
Convexity profile: CB vs. option strategy Evolution of Delta (equity sensitivity)
Stock priceStock price
Enhancing Convertible Profile by using Listed Options
Equi
ty s
ensi
tivity
Strategy 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
Source : Amundi, Exane, Bloomberg. Example from 30/05/2011
Given for illustrative purpose only
Citywire Berlin - November 2011 - page 16
1. Convertible bonds, an attractive asset class
2. Amundi process and portfolio examples
3. Expertise and Outlook 2011
Table of Contents
Citywire Berlin - November 2011 - page 17
Amundi’s expertise
Source: Amundi. Data and organisation as at 31/10/2011
Equity Strategies
Volatility, Arbitrages & Convertibles
Convertible BondsHead: Pierre Luc Charron
PMs: M.Huet, J.Gunther
Euro, Fixed Income & Credit
Credit & Convertibles
Investment specialists:J Kung, A Drabowicz
Credit and High Yield
Sharing views with 8 Portfolio Managers in Credit and High Yield
Participation in Investment Committee
Benefiting from views of 20 Analysts (including high yield)
Equity and Volatility
Sharing views with more than 20 Portfolio Managers in Equity and Volatility
Experience in Convertible Bond Volatility Arbitrage
Leverage experience in listed options
Benefiting from views of 18 Equity Analysts
Amundi’s Convertible Bonds platform: a unique positioning
Citywire Berlin - November 2011 - page 18
Performance2 4.11.2011 2010 2009 2008 Since Inception3
Sub-fund -4.76% 14.07% 25.55% -17.52% 12.31%Reference indicator -4.22% 9.19% 30.85% -31.84% -7.60%
Spread -0.54% 4.88% -5.3% 14.32% 19.91%
Risk indicators1 Since Inception3
Sub-fund volatility 9.02%Reference indicator Volatility 11.53%
Tracking Error 4.66%
Information Ratio 1.08
Amundi European Convertibles Expertise
Amundi Funds Convertible Europe
Sub-fund of Amundi Funds, the Luxembourg SICAV
Reference indicator: UBS Convertible European Focus
AUM: €67 million as at 21/10/2011
1. Source: Amundi. Risk indicators based on weekly data. Given for illustrative purpose only 2. Amundi Funds Convertibles Europe – IE C, Net performance. Data as of 4/11/20113. SGAM Fund Bonds Europe Convertible inception date: 14/12/2007Past performance does not prejudge future results, nor is it a guarantee of future returns.
Amundi Funds Convertible Europe has been activated on 24/06/11 following the merger with SGAM Fund Bonds Europe Convertible
6065707580859095
100105110115120125
Dec-07
May-08
Oct-08
Mar-09
Aug-09
Jan-10
Jun-10
Nov-10
Apr-11
Sep-11
Amundi Funds Convertible Europe IE Benchmark
Citywire Berlin - November 2011 - page 19
0
200
400
600
800
1000
1200
Jul-07 May-08 Mar-09 Jan-10 Nov-10 Sep-11
CB Index Credit Spread Itraxx Crossover Itraxx Main
-200
0
200
400
600
800
1000
1200
1400
1600
Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11
CB Asset Swap spread Bond Index: Spread/Swap
Outlook 2011: yield is back!
Credit Spread Evolution
CB with bond profile: their yield is starting to be equal or above that of their equivalent straight bond, thereby offering a free equity upside option
Mixed CB: spreads have widened, above 2010 crisis levels
Data Source: Exane. Data as of 19/10/2011The figures shown in this graph are those applicable for the years mentioned. Past markets behaviours do not prejudge future behavioursPast performance does not prejudge future results, nor is it a guarantee of future returns.
CB with bond profile
CB spread
Bond spread
CB with mixed profile
Xover
MainCB
Citywire Berlin - November 2011 - page 20
-30pt
-25pt
-20pt
-15pt
-10pt
-5pt
0pt
5pt
10pt
15pt
Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11
CB IV and 9m IV Spread Average +1 STDEV -1 STDEV
20%
25%
30%
35%
40%
45%
50%
55%
60%
Aug-05 Aug-06 Aug-07 Aug-08 Aug-09 Aug-10 Aug-11
CB IV 9m IV
Outlook 2011: an attractive entry point
Valuations
Latest selloffs have pushed up IV and realised volatilities sharply higher
However, volatility implied through CB valuation is showing a drastic decline due to selling flows
As a result, from a valuation point of view, CBs are becoming very cheap comparing the spread between IV on CBs and 9 month IV of listed options
Source: Exane. Data as of 20/10/2011IV: Implied Volatility. VH: historical volatilityPast markets behaviours do not prejudge future behavioursPast performance does not prejudge future results, nor is it a guarantee of future returns.
Last 6 years evolution Last 4 years relative evolution
of listed option
Citywire Berlin - November 2011 - page 21
Convexity/Equity: even more compelling
Average delta down 12 points, declining from 32% in July to 20% in August, now 25% 1
Asymmetrical profile of CBs: strong capacity to resist in equity market selloffs
Credit: Neutral. Yield is back!
Negative impact from credit spreads widening, especially on High Yield. A few dislocations have started to emerge, representing new opportunities
Volatility/Valuation: an attractive entry point
Attractive valuations offering cheap equity upside
M&A activity: positive for CBs
Ratchet theme: very attractive in this M&A environment (Bulgari, Autonomy)
Convertible Bonds asset class now offering an attractive profile
Outlook 2011: conclusion
1 As of 31/10/2011
Citywire Berlin - November 2011 - page 22
Amundi’s edge in Convertible Bonds Longstanding and established track record
– A track record in Euro/Europe CB universe since 1989– A track record in Global CB universe since 2005– € 2.2 billion in assets under management as of October’11– A strong team of 8 professionals
Amundi Funds Convertible Europe: Notation and Ranking– 1st Quartile “Bond Convertible Europe” by Lipper over 1 and 3 years
– Highest Lipper Leaders notation 3 years and overall
– 1st Quartile “Convertible Bond Europe” by Morningstar over 1 and 3 years– 5 Stars notation overall
– Pierre Luc Charron, Head of Convertibles, is rated AA by Citywire1 over 3 yearsCurrent European ratings
Data Source Lipper as of 30/09/2011. Lipper rating France Total Return and Consistent Return. Lipper is not responsible for the accuracy, reliability or completeness of the information that you obtain from Lipper. In addition, Lipper will not be liable for any loss or damage resulting from information obtained from Lipper or any of its affiliates. © Thomson Reuters 2011. All rights reserved.Data Source - © 2011 Morningstar, Inc. All Rights Reserved. The information contained herein: (1) is proprietary to Morningstar and/or its content providers; (2) may not be copied or distributed; and (3) is not warranted to be accurate, complete or timely. Neither Morningstar nor its content providers are responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.
Morningstar Rating TM- Overall
Data Source Morningstar as of 30/09/2011. © 2011 Citywire.co.uk. All Rights Reserved. Citywire Financial Publishers Ltd. is authorised and regulated by the Financial Services
Citywire Berlin - November 2011 - page 23
Amundi Funds Convertibles Europe: Portfolios Characteristics
Source: Amundi as of 4/11/2011
RatingsAmundi Funds Convertibles Europe
UBS CB Europe focus
AAA 5.71% 7.85%
A 3.88% 4.35%
BBB 27.67% 30.49%
High Yield 16.23% 21.73%
Non rated 38.08% 35.58%
Other & Cash 8.42% 0.00%
Country ExposureAmundi Funds Convertibles Europe
UBS CB Europe focus
FRANCE 34.01% 31.03%
UNITED KINGDOM 14.85% 10.88%
GERMANY 8.89% 9.26%
NETHERLANDS 8.51% 8.04%
NORWAY 8.13% 4.00%
RUSSIA 6.97% 4.97%
UNITED ARAB EMI 6.66% 5.03%
BELGIUM 4.36% 4.23%
SWEDEN 4.23% 4.35%
PORTUGAL 1.72% 7.88%
JERSEY 0.95% 0.00%
AUSTRIA 0.21% 1.90%
SOUTH AFRICA 0.16% 0.00%
SWITZERLAND 0.15% 0.00%
HUNGARY 0.00% 3.15%
INDIA 0.00% 3.53%
SPAIN 0.00% 1.76%
Others 0.20% 0.00%
SensitivitiesAmundi Funds Convertibles Europe
UBS CB Europe focus
Delta 23.89% 24.36%
Modified Duration 2.38 2.13
Yield 2.37% 2.90%
Maturity 3.09 years 3.13 years
Avg premium 59.84% 44.29%
Avg Spread 327 bp 419 bp
Citywire Berlin - November 2011 - page 24
Amundi Funds Convertible Europe: Key Information
Not all share classes and, as the case may be, share categories are registered for sale in all countries. Investors may contact Amundi Luxembourg S.A. for further information.
1. Or, as the case may be, an earlier cut off time applicable by the relevant distributor.2. A detailed explanation of the performance fees is provided in the Prospectus.
AE (All investors)
IE (Institutional investors)
SE (Distributors)
Management company Amundi Luxembourg S.A.
Investment manager Amundi
Custodian CACEIS Bank Luxembourg
Reference currency of the sub-fund EUR
Share categories Accumulation / Distribution Accumulation
ISIN code A : LU0568615057 D : LU0568615214
A : LU0568614670 D : LU0568614753 A : LU0568615305
Minimum initial subscription None Equivalent in EUR of USD 500,000 None
Frequency of NAV calculation Daily
Cut-off for dealing times Luxembourg Dealing days before 2 pm (Luxembourg time)1
Maximum subscription fee 4.50% 2.50% 3.00%
Annual direct management fee 1.20% 0.55% 1.40%
Maximum administration fee 0.35% 0.20% 0.35%
Performance fee2 20% of the cumulative performance above the performance objective
Maximum conversion fee 1.00%
Maximum redemption fee None
Bloomberg ticker SGBEUCA LX SGBEUCP LX SGBEUCB LX
Citywire Berlin - November 2011 - page 25
This document contains information about Amundi Funds Convertible Europe, a sub-fund (the “Sub-Fund”) of Amundi Funds (the“Sicav”), an undertaking for collective investment in transferable securities existing under Part I of the Luxembourg law of 17 December 2010, organised as a société d’investissement à capital variable and registered with the Luxembourg Trade and Companies Register under number B68.806. The SICAV has its registered office at 5, allée Scheffer, L-2520 Luxembourg.Amundi Funds has been authorised for public sale by the Commission de Surveillance du Secteur Financier in Luxembourg.Not all sub-funds of the SICAV will necessarily be registered or authorized for sale in all jurisdictions or be available to all investors.Subscriptions in the Sub-Fund will only be accepted on the basis of the SICAV’s latest complete and simplified prospectus, its latest annual and semi-annual reports and its articles of incorporation that may be obtained, free of charge, at the registered office of the SICAV or respectively at that of the representative agent duly authorized and agreed by the relevant authority of each relevant concerned jurisdiction.Consideration should be given to whether the risks attached to an investment in the Sub-Fund are suitable for prospective investors who should ensure that they fully understand the contents of this document. A professional advisor should be consulted to determine whether an investment in the Sub-Funds is suitable.The value of, and any income from, an investment in the Sub-Fund can decrease as well as increase. The Sub-Fund have no guaranteed performance. Further, past performance is not a guarantee or a reliable indicator for current or future performance and returns. The performance data do not take account of the commissions and costs incurred on the issue and redemption of units.This document does not constitute an offer to buy nor a solicitation to sell in any country where it might be considered as unlawful, nor does it constitute public advertising or investment advice.The information contained in this document is deemed accurate as at November 2011.
Amundi, French joint stock company (“Société Anonyme”) with a registered capital of € 584 710 755 and approved by the French Securities Regulator (Autorité des Marchés Financiers-AMF) under number GP 04000036 as a portfolio management company90 boulevard Pasteur -75015 Paris- France – 437 574 452 RCS Paris.
www.amundi.com www.amundi-funds.com
This material is solely for the attention of institutional, professional, qualified or sophisticated investors and distributors. It is not to be distributed to the general public, private customers or retail investors in any jurisdiction whatsoever nor to “US Persons”.Moreover, any such investor should be, in the European Union, a “Professional” investor as defined in Directive 2004/39/EC dated 21 April 2004 on markets in financial instruments (“MIFID”) or as the case may be in each local regulations and, as far as the offering in Switzerland is concerned, a “Qualified Investor” within the meaning of the provisions of the Swiss Collective Investment SchemesOrdinance of 23 June 2006 (CISA), the Swiss Collective Investment Schemes Ordinance of 22 November 2006 (CISO) and the FINMA’s Circular 08/8 on Public Offering within the meaning of the legislation on Collective Investment Schemes of 20 November 2008. In no event may this material be distributed in the European Union to non “Professional” investors as defined in the MIFID or in each local regulation, or in Switzerland to investors who do not comply with the definition of “qualified investors” as defined in the applicable legislation and regulation.
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