TwentyFour’s Investment Conference – 8th September 2015

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Fixed Income Conference - 8th September 2015

TwentyFour's annual Fixed Income Conference took place on the 8th September 2015.

The two hour conference provided over 300 of our clients a unique insight and outlook into Fixed Income markets, with Ian Entwisle (CEO EMEA at CBRE), Felix Fischer (Global Head of Research at Lucror Analytics) and Ian Shepherdson (Chief Economist at Pantheon Macroeconomics) as keynote speakers.

Topics were as follows:

  • Macro outlooks for the European Property Market
  • Current risks and opportunities in Fixed Income
  • European High Yield – Where is the value?
  • Faster and Further: The Fed is set to Confound markets

“Welcome and Business Update”

Graeme Anderson, Chairman, TwentyFour Asset Management

TwentyFour’s progress since last year:

  • TwentyFour entered into a strategic partnership with Vontobel earlier in the year. Vontobel acquired a 60% shareholding in the Firm and will help with global distribution
  • TwentyFour has added significantly more clients and our total AUM has grown to £5bn AUM
  • Performance across our funds continue to be strong
  • Completed three fund launches this year so far; Corporate Bond Fund, UK Mortgages PLC and Absolute Return Credit Fund
  • One fund launch in the pipeline; Global Unconstrained Fund
  • Honoured to receive a number of awards, including ‘Best Strategic Bond Fund’ at the Fund Manager of the Year Awards and ‘Best Fund over 3 Years’ at the Lipper Fund Awards for our Dynamic Bond Fund. The TwentyFour Income Fund won What Investment’s “Best Alternative Investment Trust”
  • Continue to invest in the best talent through our hiring

“Macro Outlooks for the European Property Market”

Richard Barkham, Global Chief Economist, and Ian Entwisle, CEO EMEA,  CBRE

  • Investment back to trend, but not anywhere near pre-crash
  • Overseas investments / cross regional is the norm
  • London is the largest and most liquid market
  • Yields have lowered but generally not as low as in 2007 and spread to risk free still juicy
  • Still more equity than debt finance – rally more sustainable
  • Pick your market
  • The ‘new normal’ world is good for real estate, and we see this continuing at least for three years;
  • Real estate still offers a good ‘spread’ over bonds;
  • The US looks like it has the best value, Europe offers good value, but Asia looks over priced;
  • US unemployment is still the best single, cyclical indicator

“TwentyFour’s views on the market and the current risks and opportunities in Fixed Income”

Mark Holman, CEO, TwentyFour Asset Management

  • Snapshot of today’s Fixed Income Market

Despite the recent back up in yields, market risks dictate a more defensive positioning
EU Convergence remains a theme – consequence for bond markets are less regional imbalances and we could see a complete compression of EU sovereign debt spreads
Europe continues to have ongoing support from QE and this is seen across credit spreads

  • What’s worrying us?

Risk free yield curves are not pricing in a term premium
Risk off assets will become a source of risks at some stage
No obvious value in broad fixed income markets
Potential unwinding of the “hunt for yield” trade

  • Positioning Tips for Headwinds

Focus on credit risk and interest rate risk should be almost entirely tactical not strategic
Shorter dated bonds are less volatile, however a reasonably high credit spread is required
Focus on Europe – Europe has ongoing support from QE and the credit cycle is more aligned to the rate cycle
Yield and pull to par will “trump” capital gains / losses

  • Unconstrained Bond Fund

Invest in higher yielding, short dated bonds
Portfolio objectives cannot be achieved merely through hedging alone
Majority of returns will come from yield in the next 12 months

Here is the audio of Mark's presentation.

“European High Yield – Where is the Value?”

Felix Fischer, Global Head of Research, Lucror Analytics

  • Performance of European HY markets

European HY has outperformed US HY substantially in the past few years
European HY was impacted by the sovereign debt crisis from late 2010-2012, thus underperformed US high yield. Recovered since 2012, as European debt crisis was less in focus
More recently, European HY has exhibited less volatility when compared to US HY; outperformance is partially attributable to lower exposure to energy related issuers

  • Credit Trends in European High Yield

Latest earnings have been supportive for European HY companies
Both historically and more recently, European default rates are well below US peers
New issuance is at elevated levels – driven by M&A, refinancing and PE
Rate increases in the US (if gradual and well-staggered) should minimally impact European HY issuers

  • Outlook for European High Yield Issuers

Fundamental outlook for European HY remains solid
Improving trend for building materials, travel & leisure and services
Challenging outlook for metals & mining and selected industrial names
European HY is relatively resilient if Greek crisis re-emerges as most companies exhibit very limited direct exposure to Greece

  • Investment Tips

Still value to be had in European HY; however, expect volatility to remain elevated in the near term
Be apprehensive of “one-product” companies – a lack of diversification resulted in several defaults in the European HY space (e.g. Phones4u, New World Resources, Edcon)
Prefer simple businesses and structures; complex business and structures tend to be more volatile and challenging to analyse (e.g. Enron, Abengoa, Isolux)
Prefer medium to low beta sectors and names in the current environment

“Faster and Further: The Fed is set to Confound Markets”

Ian Shepherdson, Chief Economist, Pantheon Macroeconomics

US interest rates will soon start to rise; eventually, the Fed will have to move even if markets are volatile
The labour market is tightening rapidly – much faster than the Fed expected – and core inflation and wages are set to rise
Europe still has a business cycle, and the core Eurozone will surprise to the upside
All EM face outflows as the Fed hikes, but beware big current account deficits, oil dependency and politics

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