September/October 2010
Perspectives
Macro Analysis //////// The challenges of autumn Asset Allocation //////// Allocation: The markets in ‘wait-and-see’ mode? Expertise Focus //////// Credit: an asset class offering attractive returns
www.am.natixis.com CORPORATE AND INVESTMENT BANKING / INVESTMENT SOLUTIONS / SPECIALIZED FINANCIAL SERVICES
SUMMARY Macroeconomic Analysis //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// 4 Asset Allocation //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// 6 Market Data ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// 7 Overview of our international product range /////////////////////////////////////////////////////////////////// 8 Expertise Focus //////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// 11 News ////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////////// 13
Legal information 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 line-up of specialised investment management and distribution entities worldwide, each of which conduct any regulated activities only in and from the jurisdictions in which they are licensed or authorized. Their services and the products they manage are not available to all investors in all jurisdictions. Although Natixis Global Associates believes that the information provided in this material to be reliable, it does not guarantee the accuracy, adequacy, or completeness of such information. • In the UK: This material is provided by Natixis Global Associates UK Limited which is authorised and regulated by the UK Financial Services Authority (register no. 190258). This material is intended to be communicated to and/or directed at persons (1) in the United Kingdom, and should not to be regarded as an offer to buy or sell, or the solicitation of any offer to buy or sell securities in any other jurisdiction than the United Kingdom; and (2) who are authorised under the Financial Services and Markets Act 2000; or are high net worth businesses with called up share capital or net assets of
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Contacts Prospectus and sales documents required for subscription are available on demand: n Natixis Global Associates (Operations): offshoreops@ga.natixis.com n or CACEIS Luxembourg (Prime Transfer Agent): f b-reg-european-ta@eu.fasnetgroup.com (352) 47 67 70 78 n or Natixis Asset Management (Clients servicing): nam-service-clients@am.natixis.com
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. Publishing Director: F. Lenoir /// Editorial Committee: Th. Benoist, S. de Quelen, Ph. Le Mée, K. Massicot, R. Monclar, F. Nicolas, Ch. Point, Ch. Lacoste, JP. Snel, B. Thiery, Ph. Waechter /// Coordination
- Writing: N. Clémot /// Head of design: F. Dupertuys /// Contributors: Ph. Berthelot, B. Boulay-Mégard, L. Faure, M. Louvrier-Clerc
PAGE 3
Editorial
The challenges for this autumn of 2010 are numerous. For Philippe Waechter, Chief Economist of Natixis Asset Management, the crisis has "gone into extra time". While the phase of coordinated stimulus packages launched in late 2009 had enabled the global economy to exit from the worst recession since the Second World War, the recovery was not sufficient. The next challenge for the global economy? Ensure that each region acts as a growth relay since neither the United States nor Europe can look for salvation in Asian development alone. Franck Nicolas, Head of Global Asset Allocation & ALM, confirms that doubts about US growth remain even if, at this stage, there is nothing in the economic statistics that points to renewed recession. Only the emergence of sources of autonomous growth would enable the establishment of a more balanced dynamic for global activity. According to Franck Nicolas, the current configuration is also characterized by no clear trend with the markets still in wait-and-see mode. In this context, Natixis Asset Management has chosen to dedicate its Expertise Focus on credit which currently seems “to constitute one of the rare asset classes offering a substantial yield, supported by both macroeconomic elements and factors specific to this asset class”, says Philippe Berthelot, Head of Credit Asset Management - corporate & structured debt at Natixis Asset Management. This expertise has been developed by Natixis Asset Management across all the credit segments from cash & credit default swaps to Investment Grade, High Yield, Core Plus, Hold-to-Maturity etc. [cf. Expertise Focus on pages 11 and 12]. As usual, you can also find the summary of Natixis Asset Management’s international offer [pages 8 to 10 of this issue]. Enjoy reading it,
Philippe zaouati
Awards
• 3rd Corbeille d’Or • Prize for the Best Equity Range On the occasion of the Mieux Vivre Votre Argent Corbeilles Awards 2010, the Banque Populaire network received one Corbeille d’Or and the Prize for the Best Equity Range over 1 year. Their range is thus ranked amongst the best performing ranges in the “Retail Banking” category over one year. These awards, made in partnership with EuroPerformance, highlighted the quality of Natixis Asset Management’s management of the rated funds distributed by the Banque Populaire network.
Source: Mieux Vivre Votre Argent – 10/2010 "Retail banking" category. Funds managed by Natixis Asset Management and distributed by the Banque Populaire network over 1 year. Funds marketed in France and registered in the EuroPerformance databases since 1 year as of 25/06/2010.
www.am.natixis.com [About us > Awards and ratings]
Deputy CEO, Head of Business Development The figures cited are for past years. Past performance is not a reliable indicator of future performance. The references to a ranking, price or rating of a UCITS do not prejudge its future results.
Natixis Asset Management
Perspectives /// September/October 2010
PAGE 4
macro analysis
The challenges of autumn The aftershocks of the crisis rumble on. The coordinated stimulus rolled out early in 2009 helped the global economy move out of its deepest recession since the Second World War. Activity indicators turned upward and improved rapidly. But this upturn was not enough. New sources of growth were still lacking and the eagerly awaited virtuous spiral has proven slow to take hold.
Each region, each geographical zone, needs to find its own new sources of growth. Neither the US nor Europe can expect to be rescued by development in Asia alone.
The coordinated response to the recession that followed the Lehman Brothers collapse, has now given way to a marked diversity. Local specifics, previously blurred by the coordinated intervention of the authorities, are once again coming to the fore. For some regions this can be good news, as seems to be the case with Germany, which has successfully caught the wave of rising international trade in goods. But for others, it can mean a drag on activity, as in the US real estate market. Globally, however, we can be sure of one thing: there will be plenty of challenges to face in coming months...
The key points
Global trend
After the clear phase of recovery seen until spring 2010, the global economy has now moved into a period of less rapid growth. Activity continues to expand but is no longer accelerating.
Since spring 2010, the global economy has continued to grow but is no longer accelerating. Now, local economies need to find fresh sources of growth to sustain the global trend set in train by closely coordinated economic policies. The dip has been evident in global industrial output, which rose at an annualized 13.4% in Q1 but faded to just 8.3% in Q2. Global trade shows a similar pattern. This shift in the spring trend was also picked up by the global manufacturing sector survey. After posting spectacular gains up to April 2010, the index, which summarizes different surveys of activity, turned down (see chart for the trend in industrial production/ global trade/ PMI components). This pattern of a sharp resurgence in activity which then slows is normal. What is worrying, here, is that the dip showed up first in Asia, which had been the first region to recover and the only one so far where output has topped pre-recession levels. If this trend
Philippe Waechter Chief Economist
The contexte
The stakes More independent sources of growth in each of the world’s major regions would allow the emergence of a better-balanced dynamic for the global economy.
Perspectives /// September/October 2010
change persists, it will imperil the whole global economy. The new situation demands that other regions take up the running. The dynamic is set to change and will probably refocus more on each individual economy.
What US recovery? Helped by the government stimulus package and recovering international trade, US growth revived quickly. Companies’ profitability improved and they started to invest again. This pattern of progress, common during past recovery phases, was reassuring for economic observers who saw the beginnings of a more lasting trend. However, employment remained the sticking point. During the recession, employment had slumped far more steeply than overall activity and the recovery seemed to be taking place almost without creating jobs. The improvement in the jobs market seen since the end of 2009 is not enough to ease the constraints on household finances. Households are still heavily indebted (with average borrowings of 125% of income in Q2 2010) and the market for their assets, real estate, has lost all fluidity and liquidity. This is motivating households to save. Only a lasting improvement in the jobs market would loosen these constraints and open the way back to more balanced growth. Between now and year-end, two issues will weigh heavily on the US: • The first is whether companies can maintain their pace of investment in the face of slackening demand. The obvious answer is no, and this will be one of the big issues in the latter part of the year. Economic
Natixis Asset Management
PAGE 5
macro analysis
expectations will therefore be important and the authorities have a key role to play here. • The second question concerns the behavior of the US authorities. A further stimulus package by the government would help shift expectations among economic actors (extending the Bush tax cuts of 2001, due to expire in 2011). If these measures are targeted at SMEs, they could go some way to restoring the economy at grass-roots level, which was severely degraded during the crisis. The Federal Reserve also needs to change perceptions among economic players by establishing expectations of low inflation and thereby cutting the cost of capital. The issues at stake in these discussions will become clear over the next few months. They will help determine whether the economy can escape a scenario of slowpaced and jobless growth. Economic policy decisions and their impact on expectations of all economic actors will be a key feature of analyses over coming months.
Mixed picture in Europe Europe’s situation is very mixed. The startling rebound in German activity during Q2 must be set alongside a sharp contraction in Greece, 20% unemployment in Spain, and modestlypaced growth in both Italy and France. This disparate trend emerged and took hold when financial markets came under intense pressure and one government after another turned to policies of budgetary consolidation. As a result, models differ from country to country: • Spain and Ireland are still pursuing a model that will put them back on track to lasting and robust growth, following the implosion of their real estate markets, • Greece and Portugal are anxious to reduce their public sector deficits, even though these were key drivers of the local economy, • France and Italy are moving back to modestly paced expansion (but with no noticeable acceleration that would
Natixis Asset Management
Europe remains prey to major uncertainties with the immediate consequence that the European Central Bank is keeping interest rates very low. Global uncertainties remain high and budget cuts would sit badly.
spontaneously lift these countries onto a stronger growth path), • Germany has profited from the quick and powerful revival of global trade. This rather mixed story has been gradually able to take a more positive turn thanks to a favorable global environment and Germany’s ability to profit from it. All of which raises two questions: • Does Europe have the growth drivers in place to sustain this phase, particularly in the jobs market? The answer is not yet clear, but we are seeing signs of improving jobs prospects in surveys of business leaders. The issue over coming months is to monitor the robustness of the domestic trend if the global environment becomes less growthfriendly. This will be especially crucial if growth eases back in Asia.
Conclusion Uncertainties about the global economic outlook have not yet been fully dispelled. The trend in emerging markets has been looking less robust since the end of spring while industrialized countries are struggling to find internal drivers for their expansion. This has two interrelated consequences: inflationary risks are still very low given the ample spare productive capacity and interest rates will remain low for some time yet.
• What impact will fiscal consolidation have? The restrictive measures being imposed in many countries, and already impacting Spain, Greece and Ireland, threaten to undermine domestic demand and so limit growth.
Written on 26/08/2010
World - Quarterly growth in industrial output, trade and monthly manufacturing survey 65.00
30.00 20.00
Production and Trade (Annualized q-o-q change)
60.00
10.00
55.00
0.00
50.00
-10.00
45.00
-20.00
40.00 Industrial production Global Trade Markit-ISM/PMI survey
-30.00 -40.00
Monthly survey Enquête mensuelle
2004
2005
2006
2007
2008
2009
2010
35.00 30.00
Source: CPB, Markit, Natixis Asset Management
www.webtv.am.natixis.com
Perspectives /// September/October 2010
PAGE 6
asset allocation
Allocation: The markets in ‘wait-and-see’ mode? The financial markets seem to have gone on holiday and 'wait and see-ism' appears more than ever required in the current environment. Doubts prevail about US growth. While nothing in the economic statistics appears to point to renewed recession, sub2% GDP growth over two consecutive quarters would be far from good news. Fiscal pressure to reimburse the US debt seems inevitable and is raising question markets as to the sustainability of growth. The markets still seem to be awaiting an answer. The current configuration is thus characterized by a continued absence of any clear trend.
Franck nicolas Head of Global Asset Allocation & ALM Risk categories
Risk subcategories
Tactical allocation* 08/10
09/10
Fixed income
=
=
equities
=
+
-
-
+ = =
= = =
Euro issuers Corporate Invest. Grade
+
+
equities
United States Euro zone
= +
= +
UK
-
-
Japan
=
=
Dollar
-
=
Yen
-
=
Sterling
+
+
-
=
=
=
Fixed income United States Euro zone UK Emerging markets Japan
Currencies (against the euro)
Commodities Oil Gold
Scale from -- to ++
*weighting gap vs. strategic allocation of an investor
Perspectives /// September/October 2010
Fixed income
Currencies
The Fed has the tools required to help out the economy but is reluctant to use them in the run-up to the mid-term elections for fear of being suspected of bias. Quantitative easing looks most likely in early 2011 but could be implemented this autumn were the situation to deteriorate. Interest rates should thus remain low on both sides of the Atlantic for some time to come.
The dollar looks to be stabilizing even if it regularly comes under pressure. Unemployment remains high and concerns about the strength of the US economic recovery are far from over in a configuration where there has been a proliferation of disappointing US economic statistics in recent weeks. The successful bond issue in Ireland, despite the credit rating downgrade from Standard and Poor's, has, however, proved supportive for the Euro.
Furthermore, deflationary worries continue to grow as can be clearly seen in US twoyear bond yields (below 50 basis points) while the one year has moved below 2.6%.
Equities Inventories in Asia are building. While a modest reversal in the inventory cycle (delivery ratio/inventory) can be seen in the developed markets, this is more marked in Asia, particularly in Korea and Taiwan. When end demand slows across the board, the fall-off in orders effectively means pressure on the Asian logistics chain with Chinese, Korean or Taiwanese companies often bearing the consequences of this slowdown. This constitutes a sign that economic growth is weakening. To take this new configuration into account, the Natixis Asset Management model portfolios have continued to underweight the emerging zones and the Asian region. They have, however, continued to increase their exposure to Europe. Europe has closed some of its year-on-year lag but the fundamentals remain sluggish, except in the case of Germany.
Commodities The Chinese government has established its forecasts on the amount of farmland needed to ensure maize and soya grain self-sufficiency. This study showed that massive imports will prove to be necessary if urbanization continues. We are not there yet but, during this period of uncertainty on the global cycle, agricultural commodities seem to offer a “wait-and-see investment" in commodities. Oil is now treading water and it is difficult to see what could push it higher at this stage.
Written on 30/08/2010
www.am.natixis.com
Natixis Asset Management
PAGE 7
markets data
As of 31/08/2010 France
Value
CAC 40 CAC Mid 100 IT CAC 20 SBF 120 SBF 250
3 490.79 6 166.70 3 260.62 2 595.42 2 538.24
1 year
Europe
Value
MSCI Europe EuroStoxx 50 DAX Footsie
87.19 2 622.95 3 473.90 5 225.22
United States
Value
Dow Jones S&P 500 Nasdaq Brent Crude Future
10 014.72 1 049.33 2 114.03 74.64
2010
-4.45% 10.48% 2.07% -2.35% -2.64%
-11.32% 1.19% -3.24% -9.23% -9.00%
1 year
Value
Nikkeï Hong Kong Singapore Shanghaï
8 824.06 20 536.49 2 950.33 256.93
-1.23% -11.54% -3.61% -3.47%
Value
MSCI World
1 080.70
0.392% 0.886% 1.137% 1.414% 0.210%
5.46% 2.81% 5.22% 7.16%
Rate
-3.96% -5.90% -6.84% -4.22%
5 years French Treasury Bond 5 years USTN 10 years French Treasury Bond 10 years USTN 30 years French Treasury Bond 30 years USTN
2010
-15.90 % 4.12 % 13.78 % 37.78 %
-16.33 % -6.11 % 1.82 % 1.79 %
1 year
1.544% 1.342% 2.467% 2.478% 3.025% 3.534%
0.053 0.065 0.055 0.11 0.060
2010 0.018 0.186 0.143 0.166 0.160
1 year -1.049 -1.053 -1.07 -0.924 -1.075 -0.646
2010 -0.935 -1.344 -1.126 -1.355 -1.235 -1.096
Currencies Value Euro/Dollar Euro/Yen (100) Euro/Sterling Dollar/Yen
2010
-0.45%
1 year
Fixed Income
2010
1 year
World
Eonia Euribor 3 months Euribor 6 months Euribor 1 year Fed Funds
2010
6.19% -5.49% 5.08% 6.44%
1 year
Asia
Money Market Rate
-7.51%
1.2710 106.7217 0.8270 83.9700
1 year -11.44% -19.83% -6.08% -9.48%
2010 -11.42% -20.10% -6.92% -9.80%
The monthly Index The decline in long-term bond yields since the beginning of the year has been spectacular in both the United States and the Euro zone. A marked change was seen starting in April. Questions surrounding growth (its real rate has fallen) have increased and there has been no formation of excessive inflation expectations. This has been reflected in a reduction in the break-even inflation rate on index-linked bonds.
Ten-year bond yields 4 3.8
United States
3.6 3.4 3.2 3 2.8 2.6 2.4
Euro zone
2.2 2 1st jan
1st feb
1st march
1st april
1st may
1st june
1st july
1st aug
1st sept
Source: Datastream
This phenomenon accelerated in the Euro zone during the spring, when German bonds (which serve as a base for rates in the Euro zone) were very much in demand. They acted as a safe haven in a highly volatile and uncertain environment. After the reimbursement, by the banks, of the one-year liquidity injection by the ECB on 1rst July 2010, questions about monetary policy in the Euro zone led to a steepening in the yield curve. The return to a situation in which the ECB might not seek to unwind its accommodative policy at a “forced march” has prompted an easing in bond yields since the middle of the summer. The Fed has not prompted such uncertainty as the direction in its monetary policy.
Are interest rates too low? That depends on expectations regarding monetary policy. If monetary policies remain accommodative over the long term to contend with difficulties in re-establishing a sustainable growth trend, then low interest rates are justified.
Natixis Asset Management
Perspectives /// September/October 2010
PAGE 8
Overview of our international Product range
Sub funds of the Natixis International Funds (Lux) I SICAV managed by Natixis AM These 6 sub funds of the Natixis International Funds (Lux) I SICAV reflect the key expertise of Natixis Asset Management
Isabelle Delannée-Méric
Natixis Euro Aggregate Plus Fund 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
Sophie Potard
Natixis Global Inflation Fund Get the most out of diversification in inflation-indexed 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
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
Christine Barbier
Natixis Impact Euro Corporate Bond Fund Combining responsability and conviction-based strategies in the eurocredit universe • Investment universe: Mainly Euro-denominated investment grade debt 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.
Perspectives /// September/October 2010
Natixis Asset Management
PAGE 9
Overview of our international Product range
Matthieu Belondrade & François Théret
Natixis Emerging Europe Fund Get the most out of the growth in the emerging European zone as part of a conviction management strategy • Investment universe: Emerging Europe Equities • Benchmark: MSCI Emerging Europe Index (indicative only) • Minimum recommended investment period: 5 years • Risk Indicator: Target tracking-error ex ante between 6 and 10
I, A I, A I, D R, A R, A R, D
EUR USD USD EUR USD USD
LU0147917792 LU0095830922 LU0095831060 LU0147918923 LU0084288595 LU0084288678
Thierry Cuypers
Natixis Europe Smaller Companies Fund Make the most of attractive European small and mid caps in a conviction investment style • I nvestment universe: European Equities •B enchmark: MSCI Europe Small Caps NDR (indicative only) •M inimum recommended investment period: 5 years •R isk Indicator: Target tracking-error ex ante between 2 and 7 (indicative, barring crisis context)
I, A I, D R, A R, D
EUR EUR EUR EUR
LU0095827381 LU0095828272 LU0064070138 LU0064070211
Christine Lebreton
Natixis Impact Europe Equities Fund Benefit from the growth potential of socially responsible European companies through conviction-based management • Investment universe: European equities • Benchmark: MSCI Europe (indicative only) • Minimum recommended investment period: 5 years
I, A I, D R, A 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.
Natixis Asset Management
Perspectives /// September/October 2010
PAGE 10
Overview of our international Product range
Natixis Asset Management's funds offer a range of expertise and innovation 25 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.
Alternative Investment
Equity
Fixed Income
Money Market
Asset Class
Fund name
Share and ISIN code
Natixis Cash Première
IA: FR0010157834
Natixis Cash A1P1
IA: FR0010322438
Natixis Cash Eonia
IA: FR0010298943
Natixis Tréso Euribor 3 mois
IA: FR0010831693
Natixis Tréso Plus 3 mois
IA: FR0007075122
Natixis Court Terme 6 mois
IA: FR0010885236
Natixis Souverains Euro 1-3
IA: FR0010208421
Natixis Souverains Euro 3-5
IA: FR0010036400
Natrixis Souverains Euro 5-7
A: FR0010201699
Natixis Souverains Euro 7-10
FR0000449092
Natixis Souverains Euro
IA: FR0010655456
Natixis Inflation Euro
I: FR0010680223
Natixis Obli Opportunités 12 mois
IA: FR0010796391
Natixis Crédit Euro
I: FR0010171108
Natixis Convertibles Euro
IA: FR0010658963
Natixis Convertibles Europe
IA: FR0010171678
Natixis Actions Euro Value
IA: FR0010270025
Natixis Actions US Growth
IA: FR0010256404
Sonic Monde
IA €: FR0010555797
Natixis Actions Global Emergents
IA: FR0010711051
Impact Funds Climate Change
IA$: LU0448199025
Natixis Performance Strategic Bond
IA: FR0010008250
Natixis Performance Swap Arbitrage
IA: FR0010654921
Natixis Performance Active Allocation
IA: FR0010688812
Natixis Constellation European Event
IA €: LU0161071237
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.
Perspectives /// September/October 2010
Natixis Asset Management
PAGE 11
EXPERTISE FOCUS
Interview with... Philippe Berthelot Head of Credit Management Chartered Financial Analyst
What is appealing about today's credit market? With interest rates very low at present, the credit sector appears to offer one of the few ways to secure a substantial return. For example, the risk-free rate is close to 0.45%, 5-year Bunds pay 1.37%, whereas yields on investment grade bonds (1) are at 3.22% and high yield bonds(2) offer 8.22 %(3).
What has brought about this situation? The advantages of the credit market stem from macroeconomic factors and the particular characteristics of this asset class. • The current "Japanization" of the European and US economies (anemic growth combined with very low interest rates) provides a favorable environment for the corporate bond sector, as long as there is no deflation. Moreover, the sovereign debt buybacks implemented by the ECB and the Fed have reduced the risk of some governments being squeezed out of the market following the recent large-scale issuance of government bonds. • Furthermore, with the rating agencies raising their ratings on a regular basis, we note that yields are abnormally high and that credit quality continues to improve. Meanwhile, corporate revenues and earnings are beating forecasts on both sides of the Atlantic. The combination of these factors and attractive valuations should provide returns four times higher over a two-year horizon than those offered by German government bonds (2.63% versus 0.65%), without any leverage.
High yield or investment grade? As both of these asset classes are undervalued at present, the decision to opt for one or the other will depend on an investor’s utility curve. Investment grade and high yield bonds have related characteristics (in particular, spreads that are negatively correlated with interest rates) but differ in terms of the risk/return relationship: the volatility of high yield bonds is, on average, two or even three times that of investment grade bonds. However, a number of factors currently make high yield bonds more attractive: • Default risk has been falling for the last two years – this trend should continue, giving a further boost to the high yield market. Our forecast for the default rate a year from now is in line with the Moody’s figures of 2.4% for Europe and 2.7% for the United States, while the historical average is close to 5% (source: Moody’s – 08/2010). • High yield companies are still reducing their debt – cash/debt ratios are at record levels. • Extensions obtained by high yield issuers beyond 2014 have enabled them to get over the 2011-2013 “refinancing wall”. Lastly, after being deserted in 2008, the primary market in Europe has become very active again, which should mean European high yield bond issuance reaches US levels over the next three years. In this context, we are preparing to launch a new European Credit Spread as of 12/08/2010 high yield bond (% of rate of return) fund, which will supplement and 2.63% 3.66% 4.12% 100 enhance our range 90 of credit funds. 80 70 60 50 40 30 20 10 0
50%
43%
36% 6%
* Source: Moody's - 08.2010
16% 24% 41%
56%
26% 2 years € Bunds
5 years € Swap Spread
10 years € Credit Spread
Source: Natixis Asset Management - Data: Bloomberg
2Y, 5Y and 10Y credit spreads - 2001-2010 (% of rate of return)
Despite the good performance of the credit market since the start of the year, we are still far from normal levels [see graph: credit spreads 20012010]. We remain positive on the credit market and anticipate a narrowing of credit spreads of 20 bp for the investment grade category over the next three months and 40 bp for high yield.
(1) MLER00 index / investment grade: bond issuers rated a minimum of BBB- or equivalent by the rating agencies. (2) MLHE00 / high yield bonds. (3) Figures as of August 12, 2010. Source: Bloomberg Natixis Asset Management.
Natixis Asset Management
Source: Natixis Asset Management - Data Bloomberg
Perspectives /// September/October 2010
PAGE 12
EXPERTISE FOCUS
Credit: an asset class offering attractive returns Credit – a core competence of Natixis Asset Management As of June 30, 2010, Natixis Asset Management had more than € 160.7 billion of assets under management in this asset class. Within the Fixed Income department, the Credit Sector teams comprise: n 8 8 portfolio managers with average market experience of over 16 years n 13 specialized credit analysts n 2 dedicated financial engineers These professionals have developed expertise in all segments of the credit sector: cash and credit default swaps, credit investment grade, credit high yield, core Plus (investment grade and high yield), hold-to-maturity, absolute return, convertible, and guaranteed-capital products, etc.
The investment process developed by Natixis Asset Management combines a top-down and bottom-up approach. The macroeconomic fundamentals, valuations, sentiment, and supply/demand factors on the markets determine the credit directional element and sector allocation. This top-down approach is combined with a bottom-up process of selecting issuers and securities based on credit fundamental research and relative value.
A broad range to meet the needs of institutional investors Operating within the multiboutique model of Natixis Global Asset Management, Natixis Asset Management focuses on euro-denominated products, with a range organized by rating level. This provides institutional clients with special access to a wide range of credit expertise.
Natixis Asset Management’s range of credit products Name of fund Benchmark index
Investment universe
Type of security
Natixis Crédit Euro Barclays Capital Euro Aggregate Corporate Index
Corporate Euro
Euro-denominated debt securities, mainly investment grade, issued by corporate issuers.
Natixis Impact Euro Corporate Bond Fund Barclays Capital Euro Aggregate Corporate Index
Corporate Euro
Euro-denominated debt securities, mainly investment grade, issued by corporate issuers, that meet SRI criteria.
Natixis Convertibles Euro Exane Convertible Index Euro DNR
Convertible Euro
Euro-denominated convertible bonds from OECD country issuers.
Natixis Convertibles Europe Exane Convertible Index Europe
Convertible Europe
Euro-denominated convertible bonds from OECD country issuers + possibility of investing max 35%. of portfolio assets in securities denominated in other currencies (mainly USD and GBP). Forex risk is not hedged systematically. Source: Natixis Global Asset Management
Perspectives /// September/October 2010
Natixis Asset Management
PAGE 13
NEWS
Partnership: Natixis Asset Management and H2O Asset Management H2O Asset Management, a new asset management company, which will be soon created in London by Bruno Crastes (CEO)(1) and Vincent Chailley (CIO)(2), has formed a strategic partnership with Natixis Asset Management. H2O Asset Management will deliver high value added "global macro" alternative management.
What is Private placement in practical terms?
With an equity stake giving it the option of becoming a majority shareholder by the end of the year, Natixis Asset Management is moving forward with its development strategy in line with the multiboutique model of Natixis Global Asset Management.
n The key criteria used to select the Natixis Asset Management private placement funds are one or several of the following ones:
Bruno Crastes, H2O AM’s CEO, notes: "We’re delighted to set up H2O Asset Management and to join an efficient multiboutique model that will enable us to serve the interests of our future clients more effectively around the world." Pascal Voisin, Natixis AM’s CEO, adds: "This investment enables Natixis Asset Management to broaden its offering with additional areas of expertise, to partner with an experienced team that enjoys a recognized track record in the market, and to support its international growth strategy." (1) Bruno Crastes (45 years of age) began his career in 1989 as a bond portfolio manager in the fixed income team of Indosuez Asset Management. He was appointed Deputy Head of the team in 1994. Following the merger of Indosuez AM with Segespar (Crédit Agricole Group) into CAAM in 1997, he became Head of Global Fixed Income & Currency management. He was further promoted CIO and Deputy CEO of CAAM London Branch in November 2002, and finally CEO in April 2005. From 2007 until April 2010, while actively managing global fixed income portfolios, he sat on the Executive Committee of CAAM (then Amundi) in charge of the United Kingdom, South East Asia and Australia. Bruno is a founding partner and CEO of H2O Asset Management. Bruno received a B.A. in Mathematics from the University of Lyon and graduated from ISFA (Institut Supérieur de Formation des Actuaires). (2) Vincent Chailley started his career in 1995 in the Research & Development team of CPR (Compagnie Parisienne de Réescompte) Capital Markets department. In 1996, he joined CAAM, first as an analyst in the Strategy team, then as an investment manager in the Asset Allocation one. In July 1998, he transferred to the global fixed income department and became an investment manager. From 2002 to 2010 he headed the global fixed income and absolute performance team of CAAM (then Amundi) London. He is a founding partner and CIO of H2O Asset Management.
• Quality of the process • Innovation of the investment approach vs competitors • Good performance over 3 years – 1 year if innovative • Sufficient assets: at least 100 m€ / m$ • Consistent with NAM asset allocation recommendations
n It is a selection of Natixis AM flagships, presenting key advantages for international distribution n Each of those flagship benefits from a "Sales Kit" Marketing materials: product profiles, product presentations • Legal materials: Simplified prospectus in English • Performance: "Private Placement performance review", fund factsheet
n All the private placement funds benefit from a quick, easy and cheap distribution channel through CACEIS TA service in Luxembourg
Vincent Chailley is a member of the French Actuaries Institute and holds a postgraduate degree in Economics and Mathematical modeling from ENSAE. He also holds a Master of Science in Applied Mathematics from the University of Paris Dauphine.
Natixis Asset Management
Perspectives /// September/October 2010
www.am.natixis.com Natixis Multimanager Subsidiary of Natixis Asset Management A French simplified joint-stock company Share Capital of 7 536 452 € 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
communication-nam@am.natixis.fr - September/October 2010.
Perspectives is a Natixis Asset Management's publication - Natixis Asset Management - Communications Department - Business Development -
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