perspectives
March 2010
Macro Analysis Exit Strategies Asset Allocation Euro zone: the PIGS problem Expertise Focus Inflation: which asset classes should be favored?
www.am.natixis.com Corporate and Investment Banking / Saving Solutions / Specialized Financial Services
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Macroeconomic Analysis
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Macro 4 Analyse Asset Allocation
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Overview of our international product range
Publishing Director: F. Lenoir Editorial Committee: T. Benoist, S. de Quelen, Ph. Le Mée, R. Monclar, F. Nicolas, Ch. Point, Ch. Lacoste, JP. Snel, B. Thiery, Ph. Waechter Coordination - Writing: N. Clémot Head of design: F. Dupertuys Contributors: B. Boulay-Mégard
11 Expertise Focus 13 News
Legal information This material has been prepared by Natixis Asset Management, a subsidiary of Natixis Global Asset Management. Natixis Asset Management is a French asset manager authorized by the Autorité des Marchés Financiers (Code 1200009, Agreement No. GP90009) and licensed to provide investment management services in the EU.
The funds mentioned in this material are not registered or authorized in all jurisdictions and may not be available to all investors in a jurisdiction. Natixis International Funds (Lux) I is organized as an investment company with variable capital under the laws of the Grand-Duchy of Luxembourg and is authorized by the financial regulator (the CSSF) as a UCITS. Natixis Global Associates S.A. is the management company of the Fund. The provision of this material does not constitute an offer of services, nor an offer or recommendation to purchase or sell shares in any financial instrument. Investors should consider the investment objectives, risks and expenses of any investment carefully before investing. In the case of a fund, these can be found in the fund’s prospectus or offering memorandum, which should be read carefully before investing. If you would like further information about any of the funds, including charges, expenses and risk considerations, contact the sender of this document or your financial advisor for a free prospectus, simplified prospectus, copy of the Articles of Incorporation, the semi and annual reports, and/ or other materials and translations that are relevant to your jurisdiction. Any reference to a ranking, a rating or an award provides no guarantee for future performance results and is not constant over time. Performance data shown represents past performance and is not a guarantee of future results. More recent performance may be lower or higher. Principal value and returns fluctuate over time (including as a result of currency fluctuations) so that shares, when redeemed, will be worth more or less than their original cost. Performance shown is net of all fund expenses, but does not include the effect of sales charges or correspondent bank charges, and assumes reinvestment of distributions. If such charges were included, returns would have been lower. The analyses, opinions, and certain of the investment themes and processes referenced herein represent the views of the author(s) referenced as of the date indicated. These, as well as the portfolio holdings and characteristics shown, are subject to change. There can be no assurance that developments will transpire as may be forecasted in this material. In certain cases, this material is provided by one of the Natixis Global Associates entities listed below, each of which is a subsidiary of Natixis Global Asset Management, the holding company of a diverse
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Editorial The first quarter of 2010 has been subject to many doubts and concerns. After equities rose sharply and the first tangible signs of a recovery appeared, the markets have seen fresh turmoil due to the (re)emergence of numerous uncertainties, such as the fears linked to a possible upsurge in inflation, doubts over the solvency of certain countries (e.g. Greece) or on a broader scale, the viability of the euro-zone... This month, Franck Nicolas, Head of Global Asset Allocation & ALM, provides us with an analysis of the issues relating to the huge public deficits of the PIGS countries (Portugal, Ireland, Greece, Spain). While bankruptcy does not appear a likely outcome, doubts over the ability of these countries to meet their debt repayments is fueling speculation on the markets. The March issue of the Expertise Focus is devoted to inflation. It sets out three inflation scenarios – an inflation rate of around 2% with reflation of high-risk assts, zero or negative inflation, and a higher rate of around 4% – and in each case identifies the asset classes to favor. Although the macroeconomic environment remains uncertain, the central banks are now looking to scale back the exceptional measures introduced in the most acute phase of the crisis, according to Philippe Waechter, Chief Economist. Having taken on a large chunk of risk, they are looking to free themselves from the burdens that are tying them down and reducing their room for maneuver, but without harming activity and the return of growth.
Philippe zaouati
Head of Business Development
As usual you can also find the summary of Natixis Asset Management’s international offer [pages 8 to 10 of this edition].
Awards
Grands Prix Le Monde Eurofonds-Funclass Natixis Asset Management, best French asset manager In the 2010 edition of the Grands Prix Eurofonds-Fundclass awarded by Le Monde, Natixis Asset Management is the best French management company in the category for major European companies managing more than 101 funds* for the third year running. *Companies with more than 101 funds registered for sale in Europe and rated by Fundclass for at least four years as of 31/12/2009. (Source: Le Monde Argent of 13/03/2010.) Past performance or reference to any rankings or awards cannot be interpreted as indicating the future performance of a fund or its manager.
Read more on page 13
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March 2010
3
Macro Analysis Exit Strategies For the past number of weeks, governments and central banks have been raising the prospect of the putting in place of exit strategies. Having exposed themselves to a large chunk of risk during the peak of the financial and banking crisis, they are looking to free themselves from the burdens that are tying them down and reducing their room for maneuver.
n A brief overview For central banks, the breakpoint followed the collapse of Lehman Brothers in midSeptember 2008. The money market had abruptly ceased to function in a climate of extreme mistrust in which banks no longer lent. Central bank intervention was necessary to enable the money market to continue playing its part and prevent the economy from being too badly affected. That is the task given to central banks. Considerable resources were thus brought to bear. Central banks provided liquidity on the back of assets held by the banks. The most basic measurement of the level of central bank intervention is the spectacular expansion of their balance sheets. Assuming a base of 100 for their respective balance sheets in the first half of 2008, the Fed was at 255 at end 2008, the ECB at 152 and the Bank of England at 245. The challenge facing governments was of a different kind. The global economic shock resulted in a swift rise in uncertainty that, by clouding economic visibility, resulted in a more wait and see type attitude. This upheaval caused trade and economic activity to plunge. To offset this sharp fall in corporate demand, governments allowed public deficits to run at rarely seen levels with, in return, an immediate and sharp rise in public debt.
n The issues raised by Philippe Waechter Chief Economist of Natixis Asset Management
central banks
The response from central banks was very different. In the US, the Federal Reserve initially put in place a whole series of measures designed to inject liquidity into institutions in difficulty. These programs were progressively scaled back, in particular from summer 2009, as the state of the banking and financial system so allowed. The increase in the discount rate in mid-February 2010 is a continuation of these measures. This phase of saving the banking system thus seems to be drawing to a close.
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Nevertheless, in order to support institutions at the heart of real-estate financing such as Fannie Mae and Freddie Mac, the Fed bought up considerable amounts of their securities, mainly securitization but also debt. Over the recent past it is the ramp-up in such purchases that has ballooned the Fed’s balance sheet with, as a result, an unusual upsurge in bank reserves with the Fed. These reserves bear interest at 0.25%. For Ben Bernanke, Fed Chairman, the issue is withdrawing this liquidity so as to prevent it from serving as a basis for an excessive credit expansion in the future. This could in effect have an impact on inflation rates and prevent the US central bank from managing its monetary policy in the manner it would like. Bank reserves with the US central bank stand at around $1,100 billion. Recent comments from Ben Bernanke were designed to lay out the vision for withdrawing this liquidity. A first option is increasing rates on reserves. The second option being looked at is trading securities held by the Fed for this liquidity (reverse repo for example). This would take time as the Federal Reserve does not want to reduce the stature of these assets by selling them. The ECB’s response was different. The European authorities in fact acted on the basis of a pre-existing framework although broadening the range of quick assets and extending maximum maturity to 12 months. This action made it possible to absorb the shocks generated by the financial and banking crisis. Unlike the Fed, the ECB only bought up a limited amount of specific securities. Purchases of covered bonds only amounted to ₏60 billion. The goal was to get this market back up running and not to underpin the realestate market as was the case across the Atlantic. Given the amount involved, under what was mobilized in the US, the ECB will not be constrained long-term by this action. As regards the emergency action taken, returning to normality is much easier. 12-month liquidity provision was withdrawn in midDecember and the 6-month equivalent will
follow at the end of March. These strategic changes were sufficiently well trailed by the ECB so as not to trigger failures or lasting problems. These exit actions are necessary. They make it possible to normalize monetary policy following an extraordinary period. This does not mean, however, that they should be interpreted as an imminent sign of a change in direction on monetary policy.
n Government challenges The explosion in public debt is severely restricting government room for maneuver and is acting as a drag on economic activity. In fact, borrowing costs are rising and financing needs are up. Moreover, government solvency has been affected, particularly given that, in the relatively nearterm, new expenditure will likely be required to deal with an ageing population. In order words, high debt limits what governments can do and their room for maneuver in the face of a negative shock to economic activity. Governments have thus published plans to rebalance their public finances. Their top goal? Stabilizing the ratio of public debt to
GDP and then bringing it down. This will require expenditure to be cut and taxes to be raised. At a European level, public finance stability plans have been in place since 2010 and are targeting a deficit of around 3% of GDP by 2013-2014 for each member state: a major effort. Public finance deficits, excluding debt servicing, will go from –5.5% of GDP in 2010 to balanced in 2013. But the ratio of public debt to GDP will only have been stabilized, whereas it needs to be curbed. This must be the overarching government aim. The problem for budgetary authorities is the two-headed nature of their goal. In the short-term, they can not be overly restrictive in order to underpin economic activity, but over the long-term they must stabilize public finances in order to bring down the ratio of public debt to GDP. This is a long-term task and it will be a good number of years before French public debt is back down to levels in line with the Maastricht criteria.
Interventions that made it possible to quickly neutralize the shock because within a few short quarters growth figures were again back in the black. Unwinding these strategies raises two major challenges: • i t will be necessary to act without overly dragging down economic activity, even through the adjustment of public finances will take time and will of necessity require a shrinkage of available income; • the opportune moment for action will have to be determined. While the ECB has already started rebalancing its balance sheet, the Fed is more cautious. Governments are similarly fence sitting: they do not want to hit economic activity by acting too quickly, thereby pushing back the timing for a real recovery in growth.
Written on 23/02/2010
n Conclusion The immediate negative impact of the economic, financial and banking crisis has been headed off by the authorities.
Central bank balance sheets Federal Reserve European Central Bank Bank of England
350 300 250 200 150 100 50
Base: June, 2008 = 100
0 jan 07
may 07
sep 07
The collapse of Lehman Brothers jan 08
may 08
sep 08
jan 09
may 09
sep 09
jan 10
Source: Datastream - Calculations: Natixis Asset Management
www.am.natixis.com
March 2010
5
Asset Allocation Euro zone: the PIGS problem In February, the markets were largely concerned with issues surrounding the solvency of certain euro zone countries. These countries, known PIGS (Portugal, Ireland, Greece, Spain) by analysts and the financial markets, are considered to be the weakest links in the euro zone. It would seem unlikely that they will go bankrupt but doubts surrounding their ability to pay down their debts and the scale of their public deficits are feeding market speculation.
Franck nicolas
Head of Global Asset Allocation & ALM Risk categories
Risk subcategories
Tactical allocation* 12/09(1) 01/10(2)
Fixed income equities
= +
= +
Fixed income United States
=
=
= =
= =
=
=
=
=
Corporate Invest.Grade
+
+
United States Euro zone
+ +
+ +
UK
+
+
Japan
=
=
Currencies
Dollar
=
=
(against the euro)
Yen
=
=
Sterling
=
=
= =
= =
Euro zone UK Emerging markets Japan Euro issuers equities
Commodities Oil Gold
The uncertainty mainly stems from the attitude of other countries (mainly France and Germany) and what the others will do to help these States get out of jail. In Greece, draconian cuts in public spending seem inevitable with all the attendant social unrest that this implies, whereas in Spain, household spending and economic activity have been flat since the bursting of the realestate bubble. Despite various government plans stimulating employment and consumption, unemployment in Spain is the highest of the 16 euro zone countries at close to 20%. Spain must moreover face up to a formidable public deficit, representing 11.4% of its gross domestic product in 2009. Ultimately, the country risks having difficulties borrowing in the market.
Scale from -- to ++ *weighting gap vs. strategic allocation of an investor
n Fixed income Against this background, German and French government debt acted as safe havens during the month. Natixis Asset Management is for the moment still negative on bonds in 2010. Nevertheless, until euro zone visibility recovers, switching to the strongest countries (generally with the highest weighting in bond indices) could well drive up the bond market.
n Equities This crisis, which only the future will tell if it was short-lived, also affected the equity markets by pushing up risk aversion. Once again, the position of Natixis Asset Management remains unchanged this year. The allocation teams expect a slight albeit positive movement in the equity markets. They thus took advantage of this “dip in the market� to add somewhat to equity positions.
n Currencies The euro was clearly the main loser during the Greece solvency issues, which created a veritable climate of mistrust around the
(1) Investment committee on 16/12/2009. (2) Investment committee on 03/02/2010.
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currency. The Natixis Asset Management Strategic Investment Committee did not expect the dollar to recover as quickly, more expecting it to take place over the course of the summer. Over the year, the Natixis Asset Management position remains bearish on the yen and neutral on the dollar, which should remain relatively firm from here on out. Nevertheless, a resolving of the Greek crisis would temporarily strengthen the euro and the Fed’s view could soften during the year, progressively raising the prospect of the start of a monetary tightening cycle in 2011 should the recovery be confirmed.
n Commodities With this rise in risk aversion, commodities were also stopped in their tracks, but it would seem that for industrial metals at least, the rise driven by growth in emerging countries will soon be on the march again.
Written on 22/02/2010
Market Data As of 28/02/2010
France
Value
CAC 40 CAC Mid 100 IT CAC 20 SBF 120 SBF 250
3 708.80 6 057.50 3 324.20 2 721.50 2 657.74
Europe
Value
MSCI Europe Euro Stoxx 50 DAX Footsie
85.37 2 728.47 3 377.82 5 354.52
United-States
Value
Dow Jones S&P 500 Nasdaq Brent Crude Future
Asia
10 325.26 1 104.49 2 238.26 77.59
Value
Nikkeï Hong Kong Singapore Shanghaï
10 126.03 20 608.70 2 750.86 254.06
World
Value
MSCI World
1 133.35
1 year
2010
37.24 % 49.69 % 30.80 % 39.10 % 39.20 %
-5.78 % -0.60 % -1.35 % -4.82 % -4.72 %
1 year
2010
41.26 % 38.06 % 39.62 % 39.80 %
-3.29 % -7.98 % -6.28 % -1.08 %
1 year
2010
46.19 % 50.25 % 62.45 % 67.40 %
-0.99 % -0.95 % -1.36 % -0.44 %
1 year
2010
33.79 % 60.86 % 72.48 % 93.34 %
-3.99 % -5.78 % -5.06 % 0.66 %
1 year
2010
50.94 %
-3.01 %
Money Market Rate Eonia Euribor 3 months Euribor 6 months Euribor 1 year Fed Funds
0.319 % 0.656 % 0.958 % 1.215 % 0.130 %
1 year
2010
-1.055 -1.169 -0.975 -0.818 -0.09
-0.091 -0.044 -0.036 -0.033 0.08
Fixed income Rate 5 years French Treasury Bond 5 years USTN 10 years French Treasury Bond 10 years USTN 30 years French Treasury Bond 30 years USTN
2.278 % 2.284 % 3.403 % 3.592 % 4.039 % 4.530 %
1 year
2010
-0.458 0.3 -0.258 0.574 -0.091 0.819
-0.201 -0.402 -0.19 -0.241 -0.221 -0.1
Currencies Value Euro/Dollar Euro/Yen (100) Euro/Sterling Dollar/Yen
1.365 121.274 0.897 88.865
1 year
2010
7.45 % -2.41 % 0.61 % -9.18 %
-4.88 % -9.20 % 0.90 % -4.54 %
The monthly Index Increase of the Fed interest rate
Fed interest rate Les taux d'intérêt en zone euro
The Federal Reserve raised its discount rate from 0.5% to 0.75% re-establishing a 50 basis point spread above the high end of the fed funds rate range [0; 0.25%]. This change took effect on February 19. Maximum maturity has been reduced to one day from 90 days at the height of the crisis. This maturity had already been cut to 28 days (decision of November 17, 2009 effective January 14, 2010).
7 Discount rate
6 5 4 3 2
Fed funds rate
1 0 2005
2006
2007
2008
2009
2010
Source: Datastream - Calculations: Natixis AM
www.am.natixis.com
We have thus moved into a new phase on the path to normalization of monetary policy. The Fed is no longer afraid to bring an end to extraordinary measures put in place during the financial crisis. It clearly feels that the financial situation has improved. We are seeing the return of a more traditional monetary policy: it is a first step. Nevertheless, fed funds rate levels are more dependent on macroeconomic activity and in fact will not move quickly. The Fed still has some room, but it will nevertheless be interesting to see if it indicates its intention to keep rates very low over the medium term in the next series of minutes of meetings of the Federal Open Market Committee (FOMC).
March 2010
7
Overwiew of our international Product range Sub funds of the Natixis International F unds (Lux) I SICAV managed by Natixis AM These 7 sub funds of the Natixis International Funds (Lux) I SICAV reflect the key expertise of Natixis Asset Management
Natixis Euro Aggregate Plus Fund ic
e-Mér
elanné
eD Isabell
Benefit from a broad range of fixed income investment opportunities
• Investment universe: Mainly Euro denominated government or private issuers rated Investment / Diversifying fixed income assets • Benchmark: Barclays Capital Euro Aggregate • Minimum recommended investment period: 3 years
I, A I, D R, A R, D
EUR EUR EUR EUR
LU0161120547 LU0391146155 LU0161121271 LU0390502184
Natixis Global Inflation Fund tard
Po Sophie
Get the most out of diversification in inflationindexed bonds in a global universe
• Investment universe: International inflation-linked bonds • Benchmark: Barclays World Government Inflation linked all maturities Index hedged in euro • Minimum recommended investment period: 2 years • Risk Indicator: Target tracking-error ex ante of 2% (maximum)
H-I, A H-I, D I, A I, D R, A R, D
USD USD EUR EUR EUR EUR
LU0390502267 LU0390502341 LU0255251166 LU0255251596 LU0255251679 LU0255251752
Natixis Impact Euro Corporate Bond Fund rbier
e Ba hristin
C
Benefiting from the SRI expertise of Natixis Asset Management through a socially responsible portfolio of investment grade corporate bonds
• Investment universe: Mainly Euro-denominated investment grade debt securities issued by OECD as well as cash, money market instruments or other securities • Benchmark: Barclays Euro Aggregate Corporate Index • Minimum recommended investment period: 3 years
I, A I, D R, A R, D
EUR EUR EUR EUR
LU0155376477 LU0391146072 LU0155380156 LU0390502770
See the full prospectus which is the only legally binding document. See the Legal Information on page 2 for important information about the funds.
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March 2010
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Natixis Emerging Europe Fund de
ndra u Belo
ie
Matth
éret
ois Th
Franç
Get the most out of the growth in the emerging European zone as part of a conviction management strategy I, A I, A I, D R, A R, A R, D
• Investment universe: Emerging Europe Equities • Benchmark: None (MSCI Emerging Europe Index: indicative only) • Minimum recommended investment period: 5 years • Risk Indicator: Target tracking-error ex ante between 6 and 10
EUR USD USD EUR USD USD
LU0147917792 LU0095830922 LU0095831060 LU0147918923 LU0084288595 LU0084288678
Natixis Europe Smaller Companies Fund Benefiting from the potential of European Small & Midcaps within the scope of a conviction-based strategy
pers
Cuy Thierry
• I nvestment universe: European Small and Mid Equities •B enchmark: None (MSCI Europe Small Caps NDR: indicative only) • Minimum recommended investment period: 5 years • Risk Indicator: Target tracking-error ex ante between 4 and 7 (indicative)
I, A I, D R, A R, D
EUR EUR EUR EUR
LU0095827381 LU0095828272 LU0064070138 LU0064070211
Natixis Euro Value Fund Tapping the potential of Eurozone value equities within the scope of a conviction-based strategy
re
Lefèv Olivier
• Investment universe: Eurozone Equities • Benchmark: None (MSCI EMU NDR: indicative only) • Minimum recommended investment period: 5 years
I, A I, D R, A R, D
EUR EUR EUR EUR
LU0389329003 LU0389329185 LU0389329342 LU0389329425
Natixis Impact Europe Equities Fund Active and responsible investing to maximise SRI value added
breton
ine Le Christ
• Investment universe: European equities • Benchmark: None (MSCI Europe: indicative only) • Minimum recommended investment period: 3 years
I, C I, D R, C R, D
EUR EUR EUR EUR
LU0095828512 LU0095828785 LU0066549592 LU0066549832
See the full prospectus which is the only legally binding document. See the Legal Information on page 2 for important information about the funds.
www.am.natixis.com
March 2010
9
Overwiew of our international Product range Natixis Asset Management's funds offer a range of expertise and innovation 28 complementary funds covering all asset classes. This quarterly reviewed list of funds aims to highlight Natixis Asset Management's most innovative products and its wide range of expertise.
Money Market
Asset class Fund name
Share and ISIN code
Natixis Cash Première
C: FR0010157834
Natixis Cash A1P1
C: FR0010322438
Natixis Impact Cash
C: FR0010008003
Natixis Cash Eonia
I: FR0010298943
Natixis Tréso Euribor 3 Mois
FR0000293714
Natixis Tréso Plus 3 Mois
FR0007075122
Fixed income
Natixis Dollar Reserve
FR0007003348
Natixis Souverains Euro 1-3
I: FR0010208421
Natixis Souverains Euro 3-5
FR0010036400
Natixis Souverains Euro 5-7
FR0010201699
Natixis Souverains Euro 7-10
FR0000449092
Natixis Souverains Euro
RC: FR0000003196
Natixis Inflation Euro
I: FR0007475413
R: FR0010170944
Natixis Obli Opportunités 12 Mois
I : FR0010796391
R : FR0007493226
Natixis Crédit Euro
I: FR0010171108
R: FR0010690966
I: FR0010658963
R: FR0010660142
Equities
Natixis Convertibles Euro
BalanAltern. Absolute return ced
R: FR0007084926
Natixis Convertibles Europe
C: FR0010171678
Natixis Actions Europe Dividende
IC: FR0010582478
RC: FR0010573782
Natixis Impact Life Quality
C: FR0010410274
E: FR0010458539
Natixis Actions Europe Convictions
C: FR0010346429
Natixis Actions US Value
I: FR0010256412
R: FR0010236893
Natixis Actions US Growth
I: FR0010256404
R: FR0010236877
Sonic Monde
I: FR0010555797
RC: FR0000993446
Natixis Actions Global Emergents
I: FR0010711051
R: FR0010706960
Natixis Absolute Quant Bond 18 M
I: FR0010232348
R: FR0010249219
IC: FR0010654921
RC: FR0010657924
IC, $: LU0161071237
IC, €: LU0161073951
Natixis Absolute Swap Arbitrage Natixis Constellation European Event Natixis Absolute Multistratégies
IC: FR0010688812
These funds are authorized for sale in France and possibly in other country(ies) where their sale is not contrary to local legislation. Please refer to legal information of this material.
10
March 2010
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Expertise Focus Inflation: which asset classes should be favored In the current economic environment, despite some progress made in moving towards an end to the crisis, the conditions are not in place for a linear recovery. The issue of inflation remains at the heart of many investors’ concerns.
Inflation in France: outlook for 2010-2011 Since 1960, two distinct trends have emerged: 1. low inflation (2 - 3%) in the early 1960s and since the mid-1980s;
Inflation rate in France
2. higher inflation in the 1970s, caused by three factors that no longer apply – central banks were not independent of governments, indexation mechanisms led to persistence in price formation and interest rates did not change as quickly as they do today because markets were less developed. In effect, real interest rates could remain negative for a long time, taking the sting out of inflation and making its persistence more likely. Following the sharp falls in 2009, can we expect inflation to return to around 2%, or will the rate be much lower, or higher than this?
Three possible scenarios 1. Natixis AM’s base scenario for 2010-2011: a return to an inflation rate remaining at around 2%, with reflation of high-risk assets
Scenario 1: Theoretical allocation (2) Cash
+
As the US economy gradually returns to its potential growth rate , in the absence of a clear and rapid recovery – unlike in the previous cycle – the extent of the recent financial crisis has forced developed and emerging economies to restructure. Emerging economies, like China, will develop their domestic markets so as to be less dependent on foreign trade.
Government bonds
-
Inflation-indexed bonds
=
Credit spread
+
Consequently, if prices of high-risk assets increase, it would seem preferable to limit government bonds. Real interest rates should not rise significantly, whereas convertible bonds could be boosted by a rise in equity prices, corporate bonds could benefit from narrower spreads and indexed bonds (often longer than nominal bonds) could be helped by a slight rise in inflation. Moreover, as is commonly the case, growth stocks tend to perform well when the economy is faltering, while value stocks do less well. Conversely, when the economy improves, value stocks come to the fore, unless investors lack confidence in the recovery.
Emerging market bonds
+
Convertible bonds Growth stocks Value stocks Emerging market equities Commodities
+ + + +
Precious metals
-
Real estate
+ Source: Natixis Asset Management
(1) Medium to long term. (2) Variable-rate bonds perform in a similar way to cash – return depends on Eonia.
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11
Low inflation scenario:
Scenario 2: Theoretical allocation (3)
inflation zero or negative, focus on nominal bonds
Cash
Conversely, in a context of lackluster growth that remains below potential without converging, the economies of the industrialized countries are not managing to adjust, nor adapt to the dynamism of the emerging countries. Growth is sluggish and the labor market is not finding its equilibrium. Against this backdrop, policy rates are still very low, but governments can no longer resort to stimulus spending because debt levels are too high and have reached a critical threshold. It is therefore reasonable to favor government bonds, as nominal bonds are the big winners in this scenario, where long yields have remained consistently low and all high-risk asset classes are suffering ongoing stress. While the decoupling of developed and emerging economies is accentuating, the latter (excluding the debt issue) continue to be hit by capital withdrawals.
-
Government bonds
++
Inflation-indexed bonds
-
Credit spread
-
Emerging market bonds
=
Convertible bonds
-
Growth stocks
--
Value stocks
=
Emerging market equities
-
Commodities
-
Precious metals
+
Real estate
-Source: Natixis Asset Management
High inflation scenario: inflation around 4%, favoring cash, emerging market equities and commodities
Scenario 3: Theoretical allocatione (3) Cash
++
Our third scenario rests on the assumption that the recovery becomes unexpectedly robust, with investment picking up rapidly and productivity improving, and the commitment to avoid inflation becoming less rigorous. Underlying this would be an implicit agreement on the part of industrialized countries, given that a slightly higher inflation rate would facilitate adjustments.
Government bonds
--
Inflation-indexed bonds
+
Credit spread
+
Emerging market bonds
=
In this scenario, it would be better to avoid government bonds, as these are the first victims of any rise in nominal rates reflecting a rise in inflation. Essentially, 10-year bonds yielding 4% are no longer attractive when other 10-year bonds with the same risk characteristics on the same market are offering 5%. On the other hand, convertible bonds (with a rise in volatility) seem well positioned, although equities are always penalized in the end by the emergence of inflation fears, which generally limits their short-term upside potential.
Convertible bonds
+
Growth stocks
=
Value stocks
+
Emerging market equities
++
Commodities
++
Lastly, exponential emerging market growth increases intentions to speed up infrastructure spending in these regions. As a result, commodities provide the best cover in this scenario.
Precious metals Real estate
++ Source: Natixis Asset Management
Written on 24.02.2010 For more information on the investment solutions offered by Natixis Asset Management for different inflation scenarios, please contact your relationship manager. (3) Variable-rate bonds perform in a similar way to cash – return depends on Eonia.
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March 2010
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News Awards
Markets: Greece’s issue
Amadeis league table: Natixis AM performs strongly
Why has Greece been in the news since the end of 2009? Why was the market reaction so strong? Would it be in Greece’s interest to leave the eurozone?
Natixis Asset Management performed strongly in le Palmarès des sociétés de Gestion 2010 d’Amadeis(1) (the 2010 Asset Manager League Table) through its no.1 spot in SRI and its improved ranking overall. This annual League Table ranks French asset managers on a range of themes in accordance with the views of a panel of investors.
n How is the ranking worked out? The 2010 Asset Manager League Table was drawn up by Amadeis over the course of December 2009 and January 2010 on the basis of the views of a panel of 58 French investors comprised of institutionals (pension funds and provident societies, mutual insurance companies, banks, insurance companies, foundations, associations…) and of distributors (distribution platforms, multi-managers, private banks…). These investors were asked to indicate which of the 68 asset managers listed seemed to them to offer a competitive advantage in 8 themes(2). For each theme, asset managers were ranked on the basis of the number of positive views expressed by all the investors on the panel. The asset managers are basically assessed on the basis of management quality, expertise and stability of management teams, rigor of the investment process, effectiveness of risk control, performance levels and consistency.
n Natixis AM: no. 1 asset manager in SRI and responsible management
Natixis Asset Management achieved no.1 spot in the “SRI and responsible management” theme.
The Fixed Income department of Natixis Asset Management addresses some of the most frequently asked questions arising out of the Greek situation... "Spreads on Greek debt have widened dramatically since the fall, with the movement intensifying from the beginning of the year. This followed a significant narrowing of spreads between March and September 2009 on credit instruments in general and the debt of peripheral eurozone countries in the wake of the resolution of the financial crisis..." Consult the Markets Flash on the Greece’s issue on www.am.natixis.com
ash
February 2010
markets fl ment bonds
Greek govern
As seen by the
Fixed Income
department
from ent intensifying with the movem march and septemen since the fall, ed dramatically narrowing of spreads betwe the wake of countries in debt have widen significant eral eurozone reached their spreads on Greekthe year. this followed a German debt the debt of periph of . these spreads with in general and the beginning on 2-year bonds explaiJanuary 2010, instruments of points end credit 476 the on be and ber 2009 can only al crisis. at on 10-year bonds of the financi the euro. they 396 basis points before Greece adopted the resolution ed the eurozone. since 1998, at those record and/or leave widest levels t on its debt dly higher than t situation... of the curren levels are marke ation that Greece will defaul ons arising out ned by an expect ntly asked questi most freque s some of the Below, we addres
widened and es, spreads these pressur on Greece's ly (40-50 bp sharply. Under increased marked pricing ranges n debt). 10-year sovereig due to: of forced sales new waves BBB; seeing to We are in securities ratings s on Greece that ’s election was far higher • a downgrade on position after the country volatility Greece’s deficit in the that than revealed • an increase , rather government 13 % of GDP consumption; g. 's credit increase VaR d, at close to spread widenin than expecte a result, the country generated by outlook previously. as • potential losses with negative ated by the 6 % announced aded to BBB+ was exacerb by s&P in rating was downgr November 2009, and then market reaction investors (hedge funds) in lastly, the only country , where the credit by fitch Ratings has therefore become the spread against derivatives markets the sovereign and Itraxx December. Greece a rating lower than a-. massively played a convergence of the sovX e with markets. imploding. to in the eurozon the eurozone reaction on the spread (leading of lively a risk of d the Greece as of triggere the real level indices), as well The downgrades d when the Bank n marks over refinancing , the questio turmoil followe 5-year bonds, In this context further market their use of ECB issue of Greek ing banks to limit s and some the previous articles compar demand for strong concern told commercial of alarmist press a EUR 25 billion This generated to obtain funding of added to a number arrangements. Greek banks na and the denial ed market the ability of Greece to argenti with China, have intensifi confusion over ent . placem markets the private on wariness.
ce been in the n Why has Greeend of 2009? news since the s in October 2009, the
n Why was the strong?
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or french liquid than Germanthe money s are far less to Greek securitie had returned markets. While liquidity on the bond instruments. d very limited generally markets, it remaine of lehman Brothers, banks contracted collapse following the hedge fund activity exposure, while reduced their
est in Greece’s inter n Would it beeurozone? to leave the n, Jean-Claude Trichet replied that
The rating this questio hypotheses". When asked nt on "absurd he doesn’t comme
xis.com
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IN BRIEF Lipper Fund Awards 2010: Natixis Asset Management among the winners
Via this League Table, Natixis Asset Management reaffirmed also its strong positioning in SRI: recognized as a pioneer with 25 years experience, Natixis Asset Management is one of the leaders in SRI in France and in Europe in terms of AUM. Its offering is one of the most comprehensive in the market, an offering that it recently enhanced with the development of expertise in the area of Climate Change, with an investment strategy that takes into account the main challenges of climate change.
Natixis Asset Management was again among the winners of the Lipper Fund Awards (France) in 2010, thanks to its high-quality management and ability to deliver consistent results with its 2 funds: CNP Assur France and Natixis Horizon 2015.
n Moving up the overall rankings
The first one was awarded a Lipper Trophy* for its performance over 3 years in the “Mixed Asset EUR Balanced – Eurozone” category and two Lipper certificates over 5 and 10 years. The second one was also awarded a Lipper certificate in the “Target Maturity Mixed Asset EUR 2015” category over 3 years.
In the Overall League Table, Natixis Asset Management moved up to 5th spot out of the 68 asset managers ranked: a great improvement on the 8th place in 2008 and only 11th in 2007. This Overall League Table is drawn up on the basis of the average ranking achieved by asset managers in each of the 8 themes(2). (1) Amadeis is an independent asset management advisory firm that supports institutional investors with their investment strategy. (2) SRI-Responsible management, money markets, euro bonds, diversified management, euro equities, international equities, alternative management. Past performance or reference to any rankings or awards cannot be interpreted as indicating the future performance of a fund or its manager.
*Lipper trophies and certificates are awarded to funds authorized for distribution in France with a track record of at least three years as at December 31, 2009, which post the best performances in their category over one or more periods (depending on universe). The currency used in the calculations is that of the country in which the awards are given (the euro in the case of the Lipper Fund Awards France).
For further information: www.am.natixis.com
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March 2010
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Perspectives is a Natixis Asset Management's publication - Natixis Asset Management - Communications Department - Business Development communication-nam@am.natixis.fr - March 2010.
Natixis Asset Management Limited Liability Company Share Capital 50 434 604,76 € RCS Number 329 450 738 Paris Regulated by AMF under n°GP 90-009 Registered Office: 21 quai d’Austerlitz 75 634 Paris, Cedex 13 - Tel. +33 1 78 40 80 00 www.am.natixis.com Natixis Multimanager Subsidiary of Natixis Asset Management A French simplified joint-stock company Share Capital of 7 536 452 euros RCS Number 438 284 192 Paris Regulated by AMF under n°GP 01-054 Registered Office: 21 quai d’Austerlitz 75 634 Paris, Cedex 13 - Tel. +33 1 78 40 32 00 www.multimanager.natixis.com