henderson global investors newcits 1110
DESCRIPTION
TRANSCRIPT
\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
November 2010
Managing Absolute Return in the Fixed Income Space
Stephen ThariyanHead of Credit
2\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Making money in credit – the story so far
Part 1 Dramatic re-pricing of the asset class Low interest rates stimulate the economy and lead to a “grab for yield” Corporate bonds prices rally on strong demand – relatively fairly priced? Government bond rally has driven a lot of credit’s total return
Part 2 Volatility predominates as micro, macro and technical factors impact liquidity Volatility invariably leads to mispricing Credit funds should exploit volatility arising from macro, corporate and liquidity
concerns
3\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
0
2
4
6
8
10
12
Jan-
97
Jul-9
7
Jan-
98
Jul-9
8
Jan-
99
Jul-9
9
Jan-
00
Jul-0
0
Jan-
01
Jul-0
1
Jan-
02
Jul-0
2
Jan-
03
Jul-0
3
Jan-
04
Jul-0
4
Jan-
05
Jul-0
5
Jan-
06
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09
Jul-0
9
Jan-
10
Jul-1
0
Jan-
11
Jul-1
1
Jan-
12
Jul-1
2
FinancialsIndustrialsUtilitiesTelecoms
Source: Merrill Lynch, as at 31 October 2010
%
Now, more than ever, active management is essential
The opportunity
An unprecedented re-pricing of credit
Historical sector spreads Opportunity Vehicle
Where we expect spreads to go
Security selection Security selectionSector selection
Security selection
Asset allocationSector selection
Security selections
Core credit index funds
Absolute return
credit funds
Core plus credit Fund
4\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Volatility in credit markets will provide good alpha generating opportunity for Credit Alpha Fund
Choice of manager and strategy is key
iTraxx main weekly range
0
10
20
30
40
50
60
70
80
Jun
-04
Se
p-0
4
De
c-0
4
Ma
r-0
5
Jun
-05
Se
p-0
5
De
c-0
5
Ma
r-0
6
Jun
-06
Se
p-0
6
De
c-0
6
Ma
r-0
7
Jun
-07
Se
p-0
7
De
c-0
7
Ma
r-0
8
Jun
-08
Se
p-0
8
De
c-0
8
Ma
r-0
9
Jun
-09
Se
p-0
9
De
c-0
9
Ma
r-1
0
Jun
-10
Se
p-1
0
bp
Looking aheadExpect trend of recent volatility to continue (5-20bps per week)
An exception as opposed to the norm.Low volatility (average 1.5bp weekly range in iTraxx Main). Few opportunities in credit led to excessive leverage and strategies which strayed from the path
Volatility is here to stay
The opportunity
Source: Bloomberg, as at 30 September 2010
5\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Source: Henderson Global Investors, as at 16 November 2010 (* includes tenure at New Star)** Includes ABS team
Yrs credit experience, yrs with
HendersonResponsibility Background
Core Credit Team
Stephen Thariyan (19,3) Head of Credit Asset Management
Chris Bullock (8,7) Portfolio Manager Asset Management
Tom Ross (8,8) Portfolio Manager Asset Management - credit dealer
Philip Payne (10,10) Portfolio manager Asset management - credit dealer
James Briggs (13,5) Consumer products, tobacco, transport, travel and leisure, healthcare, support services Asset management, accountancy
Marc Dallon (11,5) Telecoms, media, technology, gaming Asset management
Andrew Griffiths (15,1) Metals & mining, building materials, paper, packaging
Aman Mahal (3,1) Retail Asset management, business restructuring
Kalvi Nadarajah (4,4) Utilities, energy, steel Asset management
Richard Thomson (12,7) Financials, insurance Asset management – credit analyst, accountancy
Joanne Tuitt-Persaud (7,2) Capital goods, aerospace and defence, building and construction, paper, packaging Asset management – credit analyst
Natalie Wilson (7,2) Financials, insurance Credit analyst
Retail Credit Team
John Pattullo (17,13) Head of Retail, portfolio manager Asset management - credit, accountancy
Jenna Barnard (8,8) Portfolio manager Asset management
James Gledhill (18,8*) Portfolio manager Asset management – credit, equities
Ben Pakenham (5,6*) Portfolio manager Asset management
Leveraged Loans Team
David Milward (19,9) Building materials, TMT (loans) Corporate credit and structured credit
Stef Abelli (17,1) Retail, healthcare (loans) Banking, consultancy
Elissa Johnson (16,1) General industrials, auto, consumer products (loans) Hedge fund, investment banking, buy-side
Sally Tankard (20,6) Publishing, gaming + leisure, utilities (loans) Investment Banking, buy-side
Nicholas Ware Frederickson
(10,1) Chemicals, paper & packaging, business services (loans) Hedge fund, banking, private equity
Diverse and experienced team of credit specialists
Portfolio managers supported by 24 credit specialists**
6\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Credit Alpha
Longs
Shorts
Thematic
Pair Trades
Tactical
Thematic
Pair Trades
Tactical
Source: Henderson Global Investors, as at 31 October 2010
ProductPooled (UCITS III OEIC)
LiquidityDaily dealing, daily notice
Performance target3-month Libor +5% (gross)
Typical Vol 3% - 6%
Typical exposure (Net/Gross)
+/- 0.5x / 2-3x
Typical number of positions
70-100
AUM £380m
ManagerStephen Thariyan / Tom Ross / Chris Bullock
Inception July 2007
Fees
Annual management fee: 1.5%Performance fee: 20% of net performance over Libor (with high water mark)
Share classes available
sterling, euro, US dollar
Strategies InstrumentsFund details
Investment grade bonds
High yield bonds
Credit Default Swaps
Credit Default Swap indices
Credit Default Swaps
Credit Default Swap indices
7\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
‘Pair trades’. Going long a credit that the fund favours versus short a credit it does not. Typically pairs are either in the same or similar sectors.
Comprises both long and short positions Will also express ‘relative value’ betweensectors
Thematic
Pair Trades
Short timehorizon
Long timehorizon
Credit Alpha
Multi strategy credit - the three strategies
Short term positions in liquid securities that exploit technical imbalances in the market
Tactical
Source: Henderson Global Investors, as at 31 October 2010
0 200
0 200
0 200
Gross exposure by strategy
8\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Pair trades example
Source: Bloomberg, as at 31 August 2010
Long BMW vs short Tomkin
Pair trade example:
A 4% position which has contributed 29bps to fund performance
Position currently 2.8% following partial close out on 20/07/10
0
100
200
300
400
500
600
700
Fe
b-0
9
Ma
r-0
9
Ap
r-0
9
Ma
y-0
9
Jun
-09
Jul-
09
Au
g-0
9
Se
p-0
9
Oct
-09
No
v-0
9
De
c-0
9
Jan
-10
Fe
b-1
0
Ma
r-1
0
Ap
r-1
0
Ma
y-1
0
Jun
-10
Jul-
10
Au
g-1
0
Se
p-1
0
Oct
-10
BMWGR CDS EUR SR 5Y Corp TOMKLN CDS EUR SR 5Y Corp Long risk BMW tradesShort risk TOMKLN tradesBMW closeTOMKLN close
Long BMW vs Tomkin
Sp
rea
d (
bp
)
9\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Pair trades example
Source: Bloomberg, as at 31 August 2010
Long Iron Mountain vs short Stena
Pair trade example:
A 2% - 3.5% position which has contributed 20bps to fund performance
Long non-cyclical vs short cyclical
Position remains open but is close to target of -100 spread
-300
-200
-100
0
100
200
300
400
500
600
Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10
IRM 5yr CDSIRM open tradeStena 5yr CDSStena open tradeIRM - Stena spreadSpread trade level
Long Iron Mountain vs short Stena
Sp
rea
d (
bp
)
10\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Long risk BP – Intra day chart
Sp
rea
d (
bp
)
Thematic example
Source: Bloomberg, as at 31 August 2010
0
100
200
300
400
500
600
700
800
May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10
0
100
200
300
400
500
600
700
800Bought protection
Sold protection
Credit Alpha
Risk reduced as volatility of trade increased
Thematic trade example: A 2% - 3% position which has contributed 11bps to fund performance
11\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
96
98
100
102
104
106
108
Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10
96
98
100
102
104
106
108High
Low
Bought
Sold
Heidelberg
Tactical example:
Heidelberg A 1% position which has contributed 10bps to fund performance Combination of analysts positive view on Heidelberg flow and positioning information, we were able to
make a number of trades in the liquid Heidelberg 2017 issue Rationale: Taking a contrarian position to market maker positioning over a period of time. Information
gathered by Tom Ross and the 2 credit dealers.
Pric
e (p
)
Tactical example
Source: Bloomberg, as at 31 March 2010
Credit Alpha
12\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Credit Alpha
Current structure of portfolio
Thematic 75%
Pair Trades 50%
Tactical 9%
EUR 104%
GBP 5%
USD 24%
Source: Henderson Global Investors, as at 31 October 2010
Gross exposure by strategy Gross exposure by currency
Corporate bonds26%
CDS 89%
CDS index 18%
Gross exposure by investment type
Current net = -8%, current gross = 132%
Investment grade = 99% High yield = 33%
13\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Monthly NAV performance
Historic performance since inception
Source: Morningstar, Datastream, Henderson Global Investors, as at 31 October 2010Note: Performance is based on close of business pricing. Official A share class performance after the deduction
of AMC and performance fees is shown after March 2010.
-4
-2
0
2
4
6
Jul-
07
Au
g-0
7S
ep
-07
Oct
-07
No
v-0
7D
ec-
07
Jan
-08
Fe
b-0
8M
ar-
08
Ap
r-0
8M
ay-
08
Jun
-08
Jul-
08
Au
g-0
8S
ep
-08
Oct
-08
No
v-0
8D
ec-
08
Jan
-09
Fe
b-0
9M
ar-
09
Ap
r-0
9M
ay-
09
Jun
-09
Jul-
09
Au
g-0
9S
ep
-09
Oct
-09
No
v-0
9D
ec-
09
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
Credit Alpha Fund
%
% Jan Feb Mar Apr May Jun Jul Aug Sept Oct Nov Dec Total
2007 N/A N/A N/A N/A N/A N/A -0.13 0.22 0.66 0.45 -0.34 0.06 0.92
2008 -0.64 0.85 0.25 1.04 0.93 0.05 -0.23 0.44 -3.74 -1.57 -0.01 -0.23 -2.92
2009 1.33 -0.84 -0.63 3.28 4.96 3.51 3.65 1.79 2.35 1.13 0.65 0.42 23.66
2010 2.23 1.16 1.57 1.66 -1.89 -1.25 1.89 0.74 1.28 0.26 N/A N/A 7.81
Credit Alpha
14\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Credit Alpha attribution by trade type
Source: Henderson Global Investors, 31 October 2010Note: Attribution uses desk estimates which have been calculated arithmetically
-3.00%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
Jan
-09
Fe
b-0
9
Ma
r-0
9
Ap
r-0
9
Ma
y-0
9
Jun
-09
Jul-
09
Au
g-0
9
Se
p-0
9
Oct
-09
No
v-0
9
De
c-0
9
Jan
-10
Fe
b-1
0
Ma
r-1
0
Ap
r-1
0
Ma
y-1
0
Jun
-10
Jul-
10
Au
g-1
0
Se
p-1
0
Oct
-10
LongMarket NeutralShort
Credit Alpha
Attribution: Long / Market Neutral / Short
Spreads widened on month
15\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
0
1
2
3
4
5
6
7
-50
0 >
-4
75
-47
5 >
-4
50
-45
0 >
-4
25
-42
5 >
-4
00
-40
0 >
-3
75
-37
5 >
-3
50
-35
0 >
-3
25
-32
5 >
-3
00
-30
0 >
-2
75
-27
5 >
-2
50
-25
0 >
-2
25
-22
5 >
-2
00
-20
0 >
-1
75
-17
5 >
-1
50
-15
0 >
-1
25
-12
5 >
-1
00
-10
0 >
-7
5-7
5 >
-5
0-5
0 >
-2
5-2
5 >
00
> 2
52
5 >
50
50
> 7
57
5 >
10
01
00
> 1
25
12
5 >
15
01
50
> 1
75
17
5 >
20
02
00
> 2
25
22
5 >
25
02
50
> 2
75
27
5 >
30
03
00
> 3
25
32
5 >
35
03
50
> 3
75
37
5 >
40
04
00
> 4
25
42
5 >
45
04
50
> 4
75
47
5 >
50
05
.00
% >
25
> 5
0
Credit Alpha
Distribution of monthly returns
bp
Distribution of monthly returns
Source: Henderson Global Investors, as at 31 October 2010Note: Figures are produced by the desk, from the P&L attribution before the deduction of Annual Management Charges (AMC).
mean
16\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Henderson Horizon Euro Corporate Bond Fund
Key features
Euro Corporate Bond Fund profile: Benchmark: iBoxx Euro Corporates Index
Target: Benchmark + 1% (net of fees)
Universe: At least 80% invested in investment grade bonds issued in EUR
UCITS III (Sophisticated)
Non-Euro bond holding: up to 20%
Cash holding: Max 10% - average 2 – 5%
Duration range (relative): +/- 2 years
Ability to use credit derivatives
Tracking error range: typically 2-3%
Base currency: EUR
Launch date: 18 December 2009
Structure: Horizon SICAV fund
Domicile: Luxembourg
17\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Security selection
Current fund positioning
Emphasis on improving credit stories
Focus on positive event risk and attractive bond structures
Senior Irish bank paper is main “peripheral” risk
Top 10 overweight exposures
Ticker % relative
Bank of Ireland BKIR 2.02
Allied Irish Bank AIB 1.88
3i Group IIILN 1.78
European Investment Bank EIB 1.59
Nationwide Building Society NWIDE 1.52
Symrise SYMRIS 1.51
BAA Airports BAA 1.43
Lloyds Banking Group LLOYDS 1.39
Scottish & Southern SSELN 1.37
RCI Banque RENAUL 1.33
Bottom 10 underweight exposures
Ticker % relative
Deutsche Bank DB -3.11
Rabobank RABOBK -2.42
BNP Paribas BNP -1.74
Volkswagen VW -1.72
Societe Generale SOCGEN -1.46
Rexam REXLN -1.42
RWE RWE -1.29
Allianz ALVGR -1.26
ENI ENIIM -1.18
Credit Agricole ACAFP -1.15
Source: Henderson Global Investors, as at 31 October 2010Note: Horizon European Corporate Bond Fund. Weights are shown relative to the iBoxx € Corporates index
Securityselection
Focus on M&A and shareholder friendly strategy
Cautious of companies exposed to political and regulatory risk
No credit value in many large-cap domestic issuers
18\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Relative performance
Horizon Euro Corporate Bond Fund
Horizon Euro Corporate Bond Fund
%
% 3-month YTD Since inception (18/12/09)
Fund 5.03 11.57 10.54
Benchmark 2.86 6.55 5.82
Source: Morningstar, Henderson Global Investors, as at 30 September 2010Note: The benchmark is iBoxx € Corporates Index. Performance is based on net of fees, gross income reinvested. Since inception figures are annualised.
5.82
2.17
5.02
0
2
4
6
8
3-month YTD Since inception (18/12/09)
Relative performance
19\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Absolute return YTD 2010 relative to peer group
-5
0
5
10
15
20
25
Spar
inves
t SIC
AV In
v Gr
d Va
l EUR
RDK
O-Lu
x-Re
nten
Hyb
ridHe
nder
son
Horiz
on E
uro
Corp
Bon
d A
Acc
PIMC
O GI
S Glb
l Inv
Gr C
rdt
Ins E
UR H
d Ac
cCa
pital
AtWo
rk C
orpo
rate
Bon
ds a
t Wor
k C
CB W
orld
Fds
Gen
usss
chei
n Plu
s A
JPM
Glob
al C
orpo
rate
Bd
A EU
R(Hd
g) A
ccLlo
yds
TSB
Offsh
ore
Euro
High
Inco
me
FF -
Eur
o Co
rp B
ond
A Eu
ro A
ccBG
F Gl
obal
Corp
orat
e Bo
nd H
dg A
2 EU
RUn
iEuro
Rent
a Co
rpor
ates
TPa
rves
t Fle
xible
Bon
d Eu
rope
Cor
pora
te C
New
Mille
nniu
m A
ugus
tum
Cor
pora
te B
ond
AIn
vesc
o Eu
ro C
orpo
rate
Bon
d A
Acc
Allian
z PI
MCO
Corp
Bd
Euro
pa A
EUR
Dans
ke In
vest
High
Inco
me
APe
terc
am L
Bon
ds E
UR Q
uality
BFo
cuse
d Co
rpor
ate
Bond
EUR
Robe
co E
uro
Cred
it Bo
nds
D EU
RTh
read
need
le Eu
rp C
orp
Bd R
et G
rsAv
iva In
vest
ors
Euro
pean
Cor
p Bo
nd A
UniM
oney
Mark
et:
Euro
Cor
pora
tes
HSBC
GIF
Eur
o Co
re C
redit
Bon
d A
Acc
BGF
Euro
Cor
pora
te B
ond
A2 E
URM&
G Eu
rope
an C
orpo
rate
Bon
d C
EUR
UBS
(Lux
) IF
Eur
o Co
rpor
ate
Bond
s AA
-T1
Nord
ea-
1 Eu
rope
an C
orpo
rate
Bon
d BP
Aber
deen
Glob
al II
Euro
Cor
p Bo
nd I2
Focu
sed
SICA
V Co
rpor
ate
Bond
B E
URDe
groo
f Bo
nds
Corp
orat
e EU
R B
Acc
Allian
z Eu
ro C
orpo
rate
Bon
d P
Shor
t Te
rm C
redit
Inve
stDe
xia B
onds
Eur
o Co
rpor
ate
C Ac
cKB
C Bo
nds
Corp
orat
e Eu
ro A
ccAs
sena
gon
Cred
it Ba
sis G
Pion
eer
Fds
Euro
Cor
p Bo
nd E
EUR
ND
T. Ro
we P
rice
Euro
Cor
pora
te B
d A
Stan
dard
Life
SIC
AV E
urp
Corp
Bd
DTh
ames
Rive
r Cr
edit
Selec
t A
EUR
Acc
iBox
x Eu
r Co
rpor
ate
index
Vont
obel
Euro
Mid
Yie
ld Bo
nd B
iSha
res
Barc
lays
Cap
Euro
Cor
p Bd
Parv
est
Bond
Eur
o Co
rpor
ate
CBl
ueBa
y In
vest
Gra
de B
d B
DWS
Instit
utio
nal E
uro
Corp
orat
e Bd
sUB
I SICA
V Eu
ro C
orp
Bond
IIn
tl Op
p Eu
rope
an In
vest
Gra
de 4
4Pa
rves
t Su
staina
ble
Bd E
uro
Corp
orat
e C
LIGA-
Pax-
Corp
orat
es-
Unio
nSS
gA E
uro
Aggr
egat
e Co
rpor
ate
Bond
Idx
IAm
undi
Fun
ds E
uro
Corp
orat
e Bo
nd C
CKB
L EP
B Bd
Sele
cted
Inv
Grad
e Co
rp E
uro
FT E
uroC
orpo
rate
sEt
ruria
Cor
pora
te B
ond
EUR
RIN
G (L
) Re
nta
Euro
cred
it P
Acc
DJD
Yield
Plu
s EU
RiS
hare
s Ba
rclay
s Ca
p Eu
ro C
orp
x-Fin
PS II
EUR
Cor
pora
te B
onds
P C
apPi
ctet
-EUR
Cor
pora
te B
onds
-P
EUR
Muzin
ich E
nhan
cedy
ield
S/T
EUR
Acc
W&W
Euro
Cor
pora
te B
ond
ASE
B Co
rpor
ate
Bond
EUR
ABN
PP L
1 Bo
nd E
uro
Corp
orat
e C
Acc
Deka
-Cor
pora
teBo
nd E
uro
CFRo
beco
Invm
t Gr
d Co
rp B
ds I
EUR
LO F
unds
II In
vest
men
t Gra
de E
UR P
ALO
Fun
ds In
vest
men
t Gr
ade
EUR
P A
ROW
Euro
Cre
dit B
EUR
Dexia
Life
Bon
ds C
orp
Euro
IPP
F Se
lecte
d In
v Gr
ade
Corp
orat
e Eu
roUB
S (L
ux)
BS E
UR C
orpo
rate
s P
Acc
UniEu
roKa
pital
Cor
pora
tes
AWe
stLB
Me
Co F
d Eu
ro C
orp
Bd A
BNY
Mello
n Eu
ro C
orpo
rate
Bon
d C
Spar
inves
t SIC
AV In
st C
orp
Val B
ds E
UR I
ABN
AMRO
MMF
Eur
o Co
rp B
ds A
Gene
rali
IS E
uro
Corp
orat
e Bo
nds
DXLO
Sele
ction
- C
redit
Bon
ds (
EUR)
AJP
M Eu
ro C
orpo
rate
Bd
D (a
cc)-
EUR
Nova
ra A
quilo
ne C
orpo
rate
Bon
dGl
ober
sel C
orpo
rate
Bon
dVa
ngua
rd E
uro
Inve
stmt
Grad
e Bd
Idx
Inv
Natix
is Im
pact
Eur
o Co
rp B
d Fd
R/A
EUR
Inte
rfund
Eur
o Co
rpor
ate
Bond
DWS
Inves
t Eur
o Co
rpor
ate
Bond
s LC
iSha
res
Mark
it iB
oxx
Euro
Cor
p Bd
Clos
e Glo
bal E
uro
Inco
me
Bond
MS IN
VF E
uro
Corp
orat
e Bo
nd A
PS II
EUR
Cor
pora
te B
onds
ex-
Fincl
P C
apFo
ndita
lia E
uro
Corp
orat
e Bo
ndNE
F Eu
ro C
orp
Bds
RBl
ackR
ock
Euro
Cor
p Bd
Idx
Inst
Euro
LO F
unds
II In
vest
men
t Gra
de +
EUR
P A
Schr
oder
ISF
Euro
Cor
pora
te B
ond
A Ac
cE
de R
oth
Prifu
nd E
uro
Corp
Bds
A E
URUB
AM C
orpo
rate
Eur
o Bo
nd A
Acc
SGAM
Fun
d Bo
nds
Euro
Cor
pora
te A
iSha
res
Barc
lays
Cap
Euro
Cor
pBd1
-5
AXA
WF E
uro
Cred
it Pl
us A
C EU
ROy
ster
Eur
opea
n Co
rpor
ate
Bond
s EU
RSS
gA E
uro
Corp
orat
e Bo
nd In
dex
IPr
em P
ortf
Sica
v II
Unte
rneh
men
sanl
eihen
Fideu
ram
Eur
o Co
rpor
ate
Bond
AMBD
SIC
AV D
ynam
ic Di
vers
Bon
ds A
Acc
Indo
lux P
rivat
e Po
rtf B
onds
Plu
s P
iSha
res
Barc
lays
Cap
Euro
Corp
xFin
1-5
CS B
F (L
ux)
TOPS
EUR
BLlo
yds
TSB
Intl P
ort
Euro
Cor
p Bd
Sella
Cap
Mgm
t Eur
o Co
rpor
ate
Bond
ICS
SIC
AV II
(Lu
x) C
S TO
PS E
UR B
AXA
WF E
uro
Cred
it IG
AC
EUR
E. R
oths
child
Eur
o Co
rp B
ds M
id T
erm
ACB
R St
rate
gy C
onst
ant E
URNe
w Mi
llenn
ium
Lar
ge E
urop
e Co
rp A
PPF
Corp
orat
e Bo
nds
Euro
AXA
WF E
uro
Cred
it Sh
ort
Dura
tion
IC E
URIN
IK F
onds
Gene
rali
IS S
hort
Ter
m E
ur C
orp
Bond
s AX
Pion
eer
Fds
Euro
Cor
p ST
E E
UR N
DEu
rizon
Eas
yFun
d Bo
nd C
orp
EUR
ShT
RPi
onee
r Fd
s Eu
ro C
ash
Plus
E EU
R ND
Baye
rnInv
est T
R Co
rpor
ate
Bd F
ds A
LAB
Stra
tegie
s Gl
bl Cr
dt O
pps
ID E
UR H
Euro
pean
Cre
dit II
Eur
p Co
rp In
stl A
ccCr
ediin
vest
Sic
av F
ixed
Inc
EUR
I1 A
ccBa
lance
d Op
portu
nity
Fund
OP
-I-
Telem
aque
Bon
d Fu
ndAp
erta
Sica
v Eu
ro C
orpo
rate
Bon
ds B
Astra
Sic
av S
IF B
ond
Oppo
rtun
ities
AAm
undi
Fun
ds E
uro
Sele
ct B
ond
C C
Athe
na C
orpo
rate
Bon
ds C
ap A
ccEa
syET
F iTr
axx
Euro
pe H
iVol
E. R
oths
child
Eur
o Co
rp B
ds S
hort
Term
AFr
ance
Lux
Eur
ope
Flex
Rat
eBe
renb
erg
Fund
s Eu
ro C
orp
Bd S
el B
Absolute return relative to peer group
Competitor performance
Source: Morningstar Workstation, comparison with the Morningstar Fixed Income EUR-Corporate Universe, as at 31 October 2010.Note: 2010 YTD % Total return (Net of AMC)
Henderson Horizon Euro Corp Bond Fund (Class A Acc)
iBoxx Eur Corp Index
20\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Appendix
21\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Henderson Credit team
A successful credit fund management team
Stephen ThariyanHead of Credit
Stephen Thariyan joined Henderson in 2007 as Head of Credit, from Rogge Global Partners where he was a Portfolio Manager of Global Credit and its Absolute Return fund. Stephen started his career in 1988 at Ernst & Young as a Trainee Accountant and then moved to Chevron Corporation as a Senior Auditor. He moved to Gulf Oil in 1994 as a Business and Economic Adviser and then to NatWest Markets as a Director and Senior Credit Analyst.
Stephen graduated from the University of Newcastle-Upon-Tyne with a BA (Hons) in Accountancy and Financial Analysis.
Thomas RossPortfolio Manager, Absolute Return Credit
Tom has been co-managing Henderson's absolute return credit funds since 2006. Prior to this he specialised in credit trading on Henderson's centralised dealing desk. Here he was able to build strong relationships with market participants in order to gain flow and positioning information to supplement credit views. He joined Henderson in 2002.
Tom graduated from Nottingham University with a BSc (Hons) in Biology and is a CFA charterholder.
Christopher BullockPortfolio Manager, Absolute Return Credit and European Corporate Bond
Chris joined Henderson Global Investors in 2003 as Credit Analyst, focusing on the investment grade and high yield industrial sectors. He has been co-manager on the absolute return credit funds since 2006 and launched the Euro Corporate Bond fund in late 2009. He continues to provide analytical coverage for the Chemical sector. Chris trained as a management accountant with Zeneca and Accenture, before joining Insight Investment as a credit analyst.
Chris graduated with a BEng (Hons) in Chemical Engineering from Aston University and is both a CFA charterholder and member of the Chartered Institute of Management Accountants.
Significant combined experience
22\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Henderson Global Investors
Credit capabilities
Core credit Absolute Return Credit
Global corporate bond coverage
€3218.3m €632.2m €3793.0m €436.8m €7.2m
Source: Henderson Global Investors, as at 31 October 2010* As at 30 June 2010
Core plus credit Retail credit
€4,692.2m*
Segregated mandates
Credit AlphaFund (UCITS III)
3-monthLibor +5%
Investment grade credit
iBoxx Index +1%
High Alpha Credit Fund
iBoxx Index +2%
Variety of strategies
Variety of % targets
Retail Credit
Outperform peergroup
Credit Long Short Fund
+10-12%
23\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Gross & net credit exposure
-50%
0%
50%
100%
150%
200%
250%
300%
350%
Jul-
07
Se
p-0
7
No
v-0
7
Jan
-08
Ma
r-0
8
Ma
y-0
8
Jul-
08
Se
p-0
8
No
v-0
8
Jan
-09
Ma
r-0
9
Ma
y-0
9
Jul-
09
Se
p-0
9
No
v-0
9
Jan
-10
Ma
r-1
0
Ma
y-1
0
Jul-
10
Se
p-1
0
Net exposure
Gross exposure
Source: Henderson Global Investors, as at 31 October 2010Note: Exposure figures are produced by the desk
Credit Alpha
Gross & Net credit exposure
Net HG: Max 33%, Min -26%
Net HY: Max 19%, Min -13%
Gross HG: Max 270%, Min 37%
Gross HY: Max 51%, Min 12%
24\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Relative gross exposure by strategy
0
50
100
150
200
250
300
350
Jul-
07
Au
g-0
7S
ep
-07
Oct
-07
No
v-0
7D
ec-
07
Jan
-08
Fe
b-0
8M
ar-
08
Ap
r-0
8M
ay-
08
Jun
-08
Jul-
08
Au
g-0
8S
ep
-08
Oct
-08
No
v-0
8D
ec-
08
Jan
-09
Fe
b-0
9M
ar-
09
Ap
r-0
9M
ay-
09
Jun
-09
Jul-
09
Au
g-0
9S
ep
-09
Oct
-09
No
v-0
9D
ec-
09
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
Pair Trades Thematic Tactical Structural (old strategy)
Source: Henderson Global Investors, as at 31 October 2010Note: Figures are produced by the desk
Credit Alpha
Gross exposure by strategy
%
25\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Attribution
Credit Alpha Fund attribution
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Jul-
07
Au
g-0
7S
ep
-07
Oct
-07
No
v-0
7D
ec-
07
Jan
-08
Fe
b-0
8M
ar-
08
Ap
r-0
8M
ay-
08
Jun
-08
Jul-
08
Au
g-0
8S
ep
-08
Oct
-08
No
v-0
8D
ec-
08
Jan
-09
Fe
b-0
9M
ar-
09
Ap
r-0
9M
ay-
09
Jun
-09
Jul-
09
Au
g-0
9S
ep
-09
Oct
-09
No
v-0
9D
ec-
09
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
Pair Trades Thematic Tactical Structural (old strategy)
%
Source: Henderson Global Investors, as at 31 October 2010Note: Shows relative return versus 3-month Libor, figures are produced by the desk, from the P&L attribution before the deduction of Annual Management Charges
(AMC). Due to the return on cash held and discrepancies between external and internal 3-month Libor figures, relative performance from the P&L differs from the performance produced from the close of business prices.
Credit Alpha
26\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Cash vs Bonds invested
0102030405060708090
100
Jul-
07
Au
g-0
7S
ep
-07
Oct
-07
No
v-0
7D
ec-
07
Jan
-08
Fe
b-0
8M
ar-
08
Ap
r-0
8M
ay-
08
Jun
-08
Jul-
08
Au
g-0
8S
ep
-08
Oct
-08
No
v-0
8D
ec-
08
Jan
-09
Fe
b-0
9M
ar-
09
Ap
r-0
9M
ay-
09
Jun
-09
Jul-
09
Au
g-0
9S
ep
-09
Oct
-09
No
v-0
9D
ec-
09
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
Invested (%) Cash (%)
Source: Henderson Global Investors, as at 31 October 2010Note: Figures are produced by the desk
Credit Alpha
%
Exposure to physical bonds
27\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Average fund size (£’000)
0
50,000
100,000
150,000
200,000
250,000
300,000
350,000
400,000
Jul-
07
Au
g-0
7S
ep
-07
Oct
-07
No
v-0
7D
ec-
07
Jan
-08
Fe
b-0
8M
ar-
08
Ap
r-0
8M
ay-
08
Jun
-08
Jul-
08
Au
g-0
8S
ep
-08
Oct
-08
No
v-0
8D
ec-
08
Jan
-09
Fe
b-0
9M
ar-
09
Ap
r-0
9M
ay-
09
Jun
-09
Jul-
09
Au
g-0
9S
ep
-09
Oct
-09
No
v-0
9D
ec-
09
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
Source: Henderson Global Investors, as at 31 October 2010Note: Figures are produced by the desk
Credit Alpha
£
Assets under management
28\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Net performance and fund spread DV01
Net performance and fund spread DV01
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
Jul-
07
Au
g-0
7S
ep
-07
Oct
-07
No
v-0
7D
ec-
07
Jan
-08
Fe
b-0
8M
ar-
08
Ap
r-0
8M
ay-
08
Jun
-08
Jul-
08
Au
g-0
8S
ep
-08
Oct
-08
No
v-0
8D
ec-
08
Jan
-09
Fe
b-0
9M
ar-
09
Ap
r-0
9M
ay-
09
Jun
-09
Jul-
09
Au
g-0
9S
ep
-09
Oct
-09
No
v-0
9D
ec-
09
Jan
-10
Fe
b-1
0M
ar-
10
Ap
r-1
0M
ay-
10
Jun
-10
Jul-
10
Au
g-1
0S
ep
-10
Oct
-10
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Net performance
Spread DV01 (RHS)
Source: Henderson Global Investors, as at 31 October 2010Note: Performance is based on close of business pricing. Performance prior to April 2010 was adjusted by the desk to reflect the deduction of Annual Management
Charges (AMC) and performance fees. Official A share class performance after the deduction of AMC and performance fees is shown after March 2010.The spread DV01 figures are produced by the desk, from the P&L
NAV, p bp
Credit Alpha
29\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
CDS Regulation and Standardisation
Standardisation CDS contracts are now standardised (maturities, coupons, restructuring, trade with
accrued), which allows netting of contracts without any hidden risks (eg. annuity streams)
Counterparty credit risk (CCR) The largest risk to the CDS market and its liquidity highlighted by September 2008. Since
then banks are more active at hedging their CCR via CVA (credit value adjustment) desks.
At Henderson all of our ISDA and CSA agreements with our counterparties include language of bilateral collateralisation (calculated and actioned on a daily basis).
Centralised counterparty (CCP) A panacea or simply moving the risk into one place? CDS has the propensity for jumps in
valuation unlike many other OTC derivatives (Lehman CDS traded 300bps just days before defaulting). Concentrating this risk into a single place seems counterintuitive.
Transparency Over 90% of all CDS trades are reported to Depository Trust & Clearing Corporation
(DTCC). This data is publically available - see overleaf for an example of a portion of the data available.
30\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
CDS Transparency
Analysis of DTCC CDS data
Source: JP Morgan, Depository Trust & Clearing Corporation 1 October 2010
31\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
96.0
98.0
100.0
102.0
104.0
106.0
108.0
110.0
112.0
114.0
116.0
118.0
20
-Au
g-0
8
03
-Se
p-0
8
17
-Se
p-0
8
01
-Oct
-08
15
-Oct
-08
29
-Oct
-08
12
-No
v-0
8
26
-No
v-0
8
10
-De
c-0
8
24
-De
c-0
8
07
-Ja
n-0
9
21
-Ja
n-0
9
04
-Fe
b-0
9
18
-Fe
b-0
9
04
-Ma
r-0
9
18
-Ma
r-0
9
01
-Ap
r-0
9
15
-Ap
r-0
9
29
-Ap
r-0
9
13
-Ma
y-0
9
27
-Ma
y-0
9
10
-Ju
n-0
9
24
-Ju
n-0
9
08
-Ju
l-0
9
22
-Ju
l-0
9
05
-Au
g-0
9
Net performance from August 2008 – August 2009
NAV performance from August 2008 – August 2009
Sep-Nov: -550bpLehman -185bpWamu -20bpBrafbi -35bpDresdner -60bpHY Chem 2Y CDS -95bpGeneral basis move -200bp
Dec-Jan:
+200bpWinners:CDS - Chem, Insurance, SteelNew issues - Tobacco/TelcoLosers:Structural book
-165bp(ABS/Angiri/Suncorp)
Feb-Mar:
-230bpSub-bank debt sell-offAngiri/Dresdner/Lloyds/Friends ProvPair trade book:
+50bp contribution
End Mar-Aug: +1300bpThematic: ~450bp (long fins short cyclical)Pair Trades: ~200bpStructural: ~150bpTactical: ~500bp (new issues 518bp, short DSG 60bp)General basis move: ~500bp
Source: Henderson Global Investors, as at 12 August 2009Note: Shows net return, performance is after the deduction of AMC
NAV, p
Credit Alpha
32\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Pro
cess
Exa
mp
leR
isk
Co
ntr
ols
Review fundamentals
Price action relative to market
Price / spread movement
‘Hit first bid’mentality
bp impact on fund
Screening tool
Instrument selection
Timeframe
Stop-loss / target
Liquidity of instrument
Exit objective / stop-loss
Recovery value
Specific name hedge (RV) trade
Index hedge
Sectoral balance
P&L
DV01
VaR
Trackingerror
Duration contribution
Scenario Analysis
Analyst Recommendation
Position sizing
Hedging consideration
Position monitoring
Ongoing RVPrice target
reached
Sell
1.25% No Risk metrics SellBuyPrice target
reached
Trading discipline and risk controls
33\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Which companies do we favour/should we avoid?Security selection
Do corporate bonds look expensive/cheap?Asset
allocation
Sectorselection
Which sectors do we have a preference for?
Flexible process
change emphasis as
required
Top-down market view
Bottom-up stock selection
Corporate bond management – combine discipline and flexibility
Credit investment process
34\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Economicenvironment
Corporate health Market dynamics Valuations
Is the overall outlook favourable for credit?
Assess economic, political and regulatory
risks
Where are we in the credit cycle?
Ratings up/down ratio Direction of earnings
and cash flow?
Are companies issuing?Fund flow direction
Who is buying and what is the appetite?
Market spreadExpected default
Macro environment an opportunity or threat?Key sector themes?
Regulatory and political impact
Fundamental outlookRatings trends
What stage in the leverage cycle?
Volume and purpose of debt issuance?
Investor positioningIs the sector in or out of
favour?
Sector spreadRelative volatility
Unique strengths or vulnerabilities?
Cyclical / non-cyclical
Management Balance sheet
Cashflow
Company liquidityRefinancing needsIs the company well
regarded by the market?
Company spreadRelative value across
curve and security type
Securityselection
Asset allocation
Sector selection
Corporate bond management – a decision framework
Credit investment process
35\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
MacroEnvironment
Corporatebalance sheet
Supply & demand
Valuation
+ Ultra low rates and quantitative easing- Western market recovery fragile, risk of further poor economic data in 2H10 - Structural unemployment and high fiscal deficits
+ Decisive action by management teams+ Priority on cost reduction, cash flow and liquidity+ Demand stabilised / earnings improving- Top-line growth elusive / M&A appetite increasing
+ Sustained demand for corporate bonds+ Issuance requirements relatively low, less so for senior financials- Positioning overweight and a lot of new entrants
+ Credit spreads remain elevated versus expected defaults+ Overall yield attractive versus cash or government bonds
Asset AllocationEuropean Credit outlook
Where we are in the credit cycle?
36\\HDS.Int\Data\Distribution\Global\Business Support\Presentations\Fixed Interest\Credit\Credit Alpha\2010\Nov 10\Credit Alpha 1110 £.ppt
Important InformationThis document is solely for the use of professionals and is not for general public distribution.
This document is intended solely for the use of professionals, defined as Eligible Counterparties or Professional Clients, and is not for general public distribution.
Past performance is not a guide to future performance. The value of an investment and the income from it can fall as well as rise and you may not get back the amount originally invested. Tax assumptions and reliefs depend upon an investor’s particular circumstances and may change if those circumstances or the law change.
If you invest through a third party provider you are advised to consult them directly as charges, performance and terms and conditions may differ materially.
Nothing in this document is intended to or should be construed as advice. This document is not a recommendation to sell or purchase any investment. It does not form part of any contract for the sale or purchase of any investment.
Any investment application will be made solely on the basis of the information contained in the Prospectus (including all relevant covering documents), which will contain investment restrictions. This document is intended as a summary only and potential investors must read the Prospectus before investing. Issued in the UK by Henderson Global Investors. Henderson Global Investors is the name under which Henderson Global Investors Limited (reg. no. 906355), Henderson Fund Management plc (reg. no. 2607112), Henderson Investment Funds Limited (reg. no. 2678531), Henderson Investment Management Limited (reg. no. 1795354), Henderson Alternative Investment Advisor Limited (reg. no. 962757), Henderson Equity Partners Limited (reg. no. 2606646) (each incorporated and registered in England and Wales with registered office at 201 Bishopsgate, London EC2M 3AE and authorised and regulated by the Financial Services Authority) provide investment products and services. Telephone calls may be recorded and monitored.
Henderson Global Investors201 Bishopsgate, London EC2M 3AETel: 020 7818 1818 Fax: 020 7818 1819