Transcript Slide 1
Signature Global Advisors Geof Marshall, Portfolio Manager
Global Investing from a Canadian Perspective
Signature overview
• • • • •
Facts
Global investment team based in Canada 33 person investment team – one of the largest in Canada Core investment style, with diversified portfolios of large cap securities Specialize in broad flexible mandates $35 billion in AUM – ample scale to compete for talent, research and trading *Cash & cash equivalents: commercial paper, floating rates, bonds (in money market) and government (in money market) 1 As at June 30, 2010
Deep, specialized investment team
Drummond Brodeur, CFA (22) CHIEF INVESTMENT OFFICER ERIC BUSHELL, CFA (18) GLOBAL INVESTMENT STRATEGISTS Eric Bushell, CFA (18) Matthew Strauss, CFA (17) Tech, Media, Telecom Malcolm White, CFA (16)
Jeremy Yeung, CFA (10)
Financials John Hadwen, CFA (18)
Goshen Benzaquen (10)
Aero, Auto, Defence, Utilities Massimo Bonansinga, M.B.A. (21)
Gorlen Zhou (2)
Energy & Materials Scott Vali, CFA (15)
Hoa Hong, CFA (10) Sara Shahram, CFA (9)
GLOBAL SECTOR/ ASSET CLASS SPECIALISTS Industrials, Transport Joe D'Angelo, CFA (14)
Yvonne Lau, CFA (9)
Income Trusts/REITS Ryan Fitzgerald, CFA (7)
Joshua Varghese (1)
Consumer Stephane Champagne (16)
Henry Kwok (11)
Health Care Rui Cardoso, CFA (14) High Yield Geof Marshall, CFA (15)
Kevin McSweeney, CFA (11) Brad Benson, M.A. (13) Carlton Ling, CFA (8) Darren Arrowsmith, CFA (12)
Rates and Foreign Exchange
Eric Bushell, CFA (18) Paul Simon, CFA (10) Matthew Strauss, CFA (17)
Investment Grade John Shaw, CFA (21) Paul Simon, CFA (10)
Leanne Ongaro, CFA (4) Jonathan Chew (1) Derek Tucker, CFA (11) Shelly Ghai, M.B.A. (7)
Preferreds John Shaw, CFA (21) TRADING PROFESSIONALS
Shawna McIntee (7) Aldo Sunseri (26) Connie Lee (10)
Global Road Map
Developed markets: Running out of policy bullets
Europe
Fiscal C.Bank
US
1.5
Fiscal C.Bank
400 pt drop in Fed funds
1.0
QE1
0.5
0.0
-0.5
-1.0
-1.5
Jan-08 Jan-09
LTRO OMT QE2 Twist QE3
Jan-10 US Economic Surprise Index (Actual vs Expected Data) S&P 500 900 800 700 600 1600 1500 1400 1300 1200 1100 1000 Jan-11 Jan-12
Will the private sector bite?
Deleveraging and the economy
Government sector balance sheet Household sector balance sheet Banking sector balance sheet Corporate sector balance sheet
Deleveraging delayed Deleveraging ending Deleveraging ending Deleveraging completed
Bottom line:
Private sector deleveraging began in 2008 and has been the key reason why the U.S. recovery has been so weak over the past couple of years.
We are now approaching the end of the deleveraging cycle.
A non-deflationary deleveraging recipe
Add ingredients in equal measure
• Debt paydown • Default • Positive growth • Inflation
Apply low interest rates to support asset prices. Ensure banks and credit markets function. Stir for 7-10 years.
Financial repression
Bernanke
Do not ignore valuations
Source: TD Securities
Income trust redux
Financial repression: negative real rates Capital flows High payout financial structures Accretive acquisitions & earnings growth Cost of capital advantage for high payout model Dilemma: convert or be left behind
Income opportunities – caution
The progression of the yield trade – technical indicators • Massive inflows?
• Sell-side justification of valuations?
• New products?
• Hard for fundamentals to get any better?
• Spread compression between ratings?
• Increased leverage and credit risk?
Income opportunities – caution
The progression on the yield trade – structural changes
Income opportunities – high yield bonds
Value in top tier assets – MGM Resorts: 6.7% Premier resort operator on the Las Vegas Strip with such properties as Bellagio, Mirage, MGM Grand as well as joint ventures CityCenter and MGM Macau.
B3/B- rated US$8.625% bonds due 2/1/2019 and numerous secured bonds rated Ba2/B+ Aggressive balance sheet expansion prior to 2008 left MGM exposed during the credit crisis. A rebound in visitation, borrowing on a secured basis against ‘trophy’ assets and dividends from Macau allowed for the refinancing of near-term maturities and ongoing debt reduction.
Bellagio, Las Vegas Yield as of October 17, 2012
Income opportunities – high yield bonds
The Schaeffler Group – European borrower in U.S. dollars: 5.4% Leading supplier of highly-engineered components to the global automotive and industrial sectors. Debt levels increased substantially when the company tendered for shares in tire manufacturer Continental AG in September 2008.
Ba3/B+ rated US$8.5% bonds due 2/15/2019 European banks were no longer willing or able to refinance the company’s debt, forcing them into the public bond market; particularly the deep U.S. dollar high yield market. More opportunities like this to follow as the European banking sector shrinks.
Schaeffler’s slimline spur gear differential Yield as of October 17, 2012
Income opportunities – high yield bonds
Barret xPlornet – high yield bonds in Canadian dollars: 9.5% Largest Canadian provider of broadband Internet access to rural households using satellites and terrestial towers.
Un-rated C$9% cash coupon and 4% PIK senior secured bonds due 5/15/2017 with warrants Un-served market is 2.5mm households with only ~6% penetration so far compared to ~85% in urban/suburban regions. Projected growth should enable quick deleveraging with government subsidies accelerating business model de-risking.
LTV = 60% on subscribers and spectrum.
Yield as of October 17, 2012
Income opportunities – caution in Europe
Select buying opportunities in restructuring plays – Gecina 5.7% 27% Gecina 31% 42% Metrovacesa 96% Loans Former insiders Public Spanish banks Class A Paris office and apartments, leveraged at 40% LTV by YE 2012 Louis Vuitton French headquarters, Paris Dividend yield well covered at 5.25% and company un-surfacing value through apartment sales and share buybacks Trades at approximately 25% discount to liquidation value Yield as of October 17, 2012
Income opportunities – real estate
Value in unique assets – Hudson Pacific Properties: 2.8% West Coast specialist consolidating assets in top markets such as San Francisco and L.A.
Small market cap ($9000m) which means that acquisition and development strategy can dramatically increase cash flow per share.
Valuation: valuation trades in line with peer group despite the exposure to superior markets and far better growth prospects. Low dividend yield of 2.5% but set to grow in coming years.
Sunset Bronson Studios, Hollywood CA Yield as of October 17, 2012
Income opportunities – real estate
Value in irreplaceable assets – Whistler Blackcomb: 8.5% Irreplaceable asset that requires little capital expenditures and spins off a tremendous amount of free cash flow.
Cash flows have proved very resilient to both weather and recession.
Spun out of IntraWest which was taken private by Fortress in a disastrous top-of the-market deal in 2006.
Valuation: 9x 2013 EBITDA. 8% dividend yield and substantial potential for capital gains .
Peak to Peak Gondola, Whistler Blackcomb, B.C.
Yield as of September 5, 2012
Income opportunities – caution in Europe
Latin American infrastructure on sale San Cristobal Tunnel completed in 2008. and operated by Spanish firm ACS and German firm Hochtief. ACS is highly levered. At the beginning of 2011 they faced €12B in 2012 debt maturities against a market cap of €11B.
San Cristobal Tunnel, Santiago, Chile ACS began selling assets in 2011, starting with Latin American infrastructure assets. Brookfield Asset Management buys a stake in the Vespicio toll road as well as the San Cristobal tunnel for $291mm.
Conclusion – European deleveraging will create
global
opportunities for capital providers for years to come.
Signature flexibility
• Continue to invest in good, risk-adjusted securities • Continue to invest in securities and asset classes set to benefit from deleveraging • Will not simply invest in higher-yielding, higher-risk securities that have not yet run up in price • Seek maximum diversification and remain cautious of common themes that can creep into portfolios • Take full advantage of fund flexibility to manage downside risk
Signature positioning
Cash & gold
• Cautionary holdings; overweight
Government bonds
• Negative real returns; underweight
Investment-grade bonds
• Specific opportunities; market weight
High-yield bonds
• Still finding value; overweight
Equities
• Strong, less economically sensitive, quality; slight underweight
Signature Diversified Yield
Portfolio Snapshot, as at Sept. 30, 2012
Conclusion
• Policy actions will continue to dominate markets • Real interest rates will be low or negative for some time • Financial repression changes the rules for investors • Canadian investors need to be positioned to take advantage of global trends • Global yield story has legs • Signature has the personnel, process, and solutions to gives investors a real advantage in uncertain market
Signature Solutions
Source: “PalTrack”, as at Sep. 30, 2012
Signature team awards
Eric Bushell, Chief Investment Officer, Signature Global Advisors
Morningstar Equity Manager of the Year, 2009 Morningstar Fund Manager of the Decade, 2010
• Signature High Income Fund –
Global Balanced 2010, 2011 Best Canadian income trust fund, 2004, Best
• Signature Canadian Balanced Fund –
2009 Best Canadian balanced fund, 2007,
• Signature Canadian Resource Fund –
2008, 2009 Best natural resource equity fund,
• Signature Dividend Fund –
Best dividend fund, 2001, 2002, 2009
• Signature Income & Growth Fund –
Best global balanced fund, 2008
• Signature Select Canadian Fund –
Best Canadian equity fund, 2001
Thank you
All charts and illustrations in this guide are for illustrative purposes only. They are not intended to predict or project investment results.
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