2013-02-21

Video ID:

8940

Job Number:

7154

Meta

Description:

Todd Youngberg and Martin Gawne provide an update on Global High Yield.

Bookmarks:

0|Global High Yield
12|What's next
144|Market performance
460|Next for Global High Yield
518|Default rates and spreads
674|A summary of recommendation
946|Using simple math
1180|Returns vs GDP Growth
1243|New Issuance
1472|Refinancing
1491|Expected default risk lowered
1553|Risk and return
1627|Correlation
1746|Risks, benefits and strategy
2179|Questions

Duration:

00:40:24

Recorded Date:

21 February 2013

Video Image:



Transcript:

Martin Gawne: Greetings and welcome to the Aviva Investors Global High Yield conference call and webcast. My name is Martin Gawne and I’m Director of Marketing for Aviva Investors America. Today, I’m very pleased to be joined by Todd Youngberg, Global Investment Director of Fixed Income and Head of High Yield Investment. I’d like to start by first telling you a little bit about Todd’s background.

Todd Youngberg joined Aviva Investors in 2008. He is responsible for overseeing all high yield strategies and managing your high yield business. Todd had more than 20 years of investment management industry experience prior to joining our firm. Todd was Senior Managing Director and Global High Yield, Senior Managing Director of Global High Yield for ABN AMRO Asset Manager Incorporated. Todd earned his Bachelor’s degree in Business Management from Central College, and his Masters of Business Administration degree from Drake University. He holds the Chartered Financial Analysts designation and is a member of the CFA Institute and the CSA Society of Chicago.

Before I turn the call over to Todd a simple reminder: if you’d like to submit any questions during or after the call, please click the green ask a question tab or button in top right of the screen, and we will do our best to answer them once Todd has concluded his formal remarks. With that, I will now turn the call over to Todd Youngberg.

Todd Youngberg: Thank you very much, Martin, and thank you very much for our listeners today. I know a lot of people have tuned in across the globe. We’re going to talk about the global high yield market. Our presentation is entitled What’s Next for Global High Yield, so we want to spend a little bit of time on where we’ve been, looking at some of the characteristics of the market, some of the opportunities, some of the risks, and then on a going forward basis what we can potentially expect in a total return perspective on the marketplace.

So let’s get busy. On page 2 we’ve outlined some of the different sectors within the global high yield marketplace, and I want to spend a little time on where we’ve been in 2012. Global high yield on a US dollar hedged basis was up 18.2%, driven primarily by the lower quality tiers. In fact you’ll see that theme throughout the marketplace. The more speculative sectors of the market really drove the rally: CCCs in this instance up nearly 21%, and Cs or CAs only about 2 to 3% of the market were up over 39%. On a regional basis, the European high yield market, as defined by euro and sterling denominated bonds, outpaced the US dollar market quite significantly, regaining their underperformance from 2011 by leaps and bounds. Euro’s up over 28%, sterling up 34½% compared to dollar high yield only up 15.8%. When we look at both quality and currency, year to date through the end of January, we see a little bit of change in regions where the euro portion of the market has not performed quite as well, and the sterling continues to perform well, and the US market has a strong showing as well at 1.3%. When we look at the quality tiers, we have seen just a tremendous rally in the lower quality sectors of the market year-to-date: CCCs up 2.6% and CAs up 3.7%.

Now keep in mind, we’re going to talk about this in a little bit, some of the rate sensitivity issues that we have when we look at the different quality tiers. The five year US treasury is probably the most comparable treasury to compare against the duration of the high yield market. And it started the year of 2012 at 0.9% yield, and declined just 0.7% yield during the year, one of the reasons why the BB quality tier performed quite well in 2012. However that yield is back up to 0.9% in the month of January. One of the reasons why that BB quality tier has underperformed the lower quality tiers of the market, it’s because that BB quality tier at current valuation has more interest sensitivity than the rest of the market, and we’ll come back to this in a bit.

So in January we’ve had very good returns in the high yield marketplace, 1.2%, and year to date as of last night we’re actually up 1½% year to date. When we look at the top performers in an industry basis, you can see in 2012 it was very much focused on the finance industries. Banking, property and casualty insurance companies, non-captive consumer finance companies, they led the rally, and these are typically not industries that you would see in the high yield marketplace. Many of the names within these industries have fallen angel quality just over the last couple of years. The bottom performers last year, the only industry to have a negative performing year supermarkets, and then refining in metals and mining had actually pretty good years when you look at absolute performance but underperformed the market significantly.

This year we’re seeing supermarkets in the column farthest to the right having the best year of all the industries, up 8%, and driven primarily by super value. Super value long bonds are up over 20 points year to date. However we’re seeing a very similar theme in the non-captive consumer finance and the property and casualty insurance. They continue to be top performers as they were last year. If we go to the bottom of the page, and as the middle of the month of February, this is where we’re looking at valuations. The option adjusted spread and we want to look at option adjusted spread, because most of our market is colourable and has optionality, is at 472.

This is just inside the long term average. The yield to worst is at 5.9%, so very close to the lows that we hit in January of 5.6%. We commonly joke about high yield these days being relatively high yield. It’s certainly high relative to risk rerates but it’s certainly very low on a historical basis. And then the duration of course in high yield is just below 4 these days. Not on this page but quite important is the average dollar price of the high yield market. It’s around 104.4, so close to the all-time highs again, and we’ll come back to this, because we do think that going forward most of your return is going to be from income and not from price appreciation.

That’s a little bit of a summary on where we’ve been over the last year and year to date, and then where current valuations are. If we go to the next page we want to remind our viewers that over the long term when you look at the annualised return of the high yield marketplace of 9.7%, over 100% of that total return has come from income return, 108% to be exact as this page illustrates. The price return on average has been negative, and this has to do with the default risk, and here it was in the high yield asset class. We highly expect that 2013 will consist mainly of income return, very similar to this long term history. When you have an average dollar price of 104.4 in the marketplace you do not expect much price appreciation going forward, and we’ll certainly touch on that in the following pages.

The next page is important because in order to understand where we’re going it’s always good to have a grasp of history, and this page is one of our favourite charts to show you the relationship between high yield spreads in light blue and high yield default rates. And you can see that the two are very related; in fact if you run a regression spreads do lead default rates by around six to nine months, and it’s pretty apparent when you take a look at the lines. Today, on a spread basis as mentioned, we are actually just inside the long term average, but when you look at default rates we’re well below the long term average. Today’s default rates according to Moody’s on a trailing 12 month basis, the default rate is at 2.5% and forecasted to only rise to 2.7% over the next 12 months.

So we’re in a pretty good environment as appertains to default risk. Spreads however can come in. They can come in a little bit on a spread basis tightening in to reflect that low default risk. If you look back to 2004 to 2008, default rates were slightly lower and spreads were significantly lower, hitting their all-time tights of 250 basis points in August of 2007. We do not think that spreads will tighten from current levels to 250. If they do our opinion is that that will be because rates are rising rather than high yield prices rallying.

One other point that we want to make on this is that when you look at the path troughs in the cycle, for example 1990s, from 1992 through 1998, you know, that trough in the spread cycle where spreads stayed low for a relatively long time, about six years, it’s something that we want to keep in mind. You can also look at the trough in 2004 to 2007; it was about three plus years there as well. And when you look at today we’re really potentially starting a new trough in here, and that’s why we do believe that we don’t see any type of acceleration in default rates any time soon, but we do see that spreads could stay relatively low as defaults stay low over the coming couple of years. We’ll come back to why we think default rates will stay low in the near future soon.

Going to the next page, really our summary recommendation is recommending a market weight allocation. We’re not pounding the table to be quite honest with everyone on the high yield asset class, mainly because of valuations. However we are saying that it still makes a lot of sense to have an allocation of high yield bonds within your asset allocation. You know, when we touch on some of the bullet points on this page, one of the very good characteristics that’s supporting this marketplace is that default rate. That’s what drives high yield spreads. The main risk in high yield bonds of course is probability of default, and we think the environment continues to be very good and we do not see default rates accelerating any time soon.

Corporate profitability has been pretty good on a year over year basis in the fourth quarter. As of this morning with the S&P500 85% of the companies in the S&P500 have reported 7.9% increase year over year. When you exclude financials, because the high yield market is certainly more industrial than financial, the year over year increase if 2.3%. So relatively flat excluding financials, but we’re in pretty good shape on an earnings basis.

Balance sheets as well are very strong, and we’ll touch on this in a little bit, but when we look at balance sheets that’s a very significant factor going into default risk. Because of all of the refinancing activity over the last several years, companies have very little debt maturing over the next few years, and in combination with that they have record cash balances. So there’s conservatism by many CFOs by not re-levering up the balance sheets, by being much more conservative, is really keeping that default rate quite low these days. So it’s a combination of strong profits, strong balance sheets and frankly a very strong ability to service debt through strong interest coverage ratios. And interest coverage ratios, the ability to service debt, are well above the long term average.

Demand continues to be very strong, and this has been a technical of the market, not only with the mutual funds, and the mutual funds are about a third of the buyer base in the high yield marketplace, but the institutional market as well. And when we talk about institutional demand, we’re talking about the demand for high yield bonds globally. And in my career I've never seen as much demand from an institutional perspective as I see today on a global basis. Out of Europe, Asia, North America and South America, the hunt for yield is on, it continues to be on, and high yield is really in a very sweet spot for that demand.

Now when we look at valuations, as we touch on the past, you know, we’re just a little cautious on valuations. We do feel that fundamentals and technicals are strong enough to support these valuations, but yields are close to all-time lows, prices are near all-time highs, and spreads are just inside the long term average. So we’re not screaming go out and load the boat on high yield right now, and we want to make that perfectly clear. It’s good to have some exposure because of the underlying fundamentals and technicals, but do allow yourselves some space in case valuations do widen.

Now on a macro basis we do think that there will be some key political legislative decisions this year, specifically in the US. You know, the spending cuts coming up in March, the debate on the duration of quantitative easing 3 in the Fed minutes that were released yesterday. We do think that there could be some volatility caused by some of these more macro type of events. Now will this cause default probability to increase? We really don’t think so. But it could potentially cause some short term spread volatility. On a micro basis however, we believe returns will certainly be less data oriented and more idiosyncratic in 2013. It’s all going to come down to security selection. And so going with an active manager that has a very good disciplined process and not only selecting securities but avoiding the losers will really be how you beat the market in 2013.

This next page many of you are familiar with, it’s our monthly scenario analysis. And we’ve added a new variable, and that is of interest rate change. We’re taking a look at data as of the end of the month in January, and that’s the box to the left, just looking at valuations, the average price, the option adjusted spread, your yield to worst at 6%, and then the current yield. The current yield by the way is your cash coupon divided by your average market price. So that is basically your income return as a component of your total return.

Now in scenario one we’re looking at more of a kind of a worst case scenario if you will, where default rates increased from the current 2½% to 4%, the recovery on those defaults is a very conservative 35 cents on the dollar and spreads are widening by 250 basis points. And we’ve added this treasury change of 30 basis points of treasuries going lower. Now 30 basis points may not seem like a lot, but the five year US treasury is at .88%. So, if it drops by 30 basis points on a percentage basis, that’s a pretty large drop.

So when we look through the overall total return in this scenario, we get the percentage change from defaults at negative 2.6, change from spreads at negative 9.9, a little bit of positive from treasuries rallying on a flight to quality bid of 1.2%, and of course the power of the coupons as many of you know that we call 7.2% cushions a lot of that price volatility. So you have a forecasted return for 12 months of negative 4.1%. Many people are surprised by this, where they think wow, in this dire scenario of defaults really starting to increase and spreads widening out, they would think that returns would be much lower. Well that coupon really does cushion that price volatility caused by defaults and spreads.

Now scenario two is definitely much more of our base case scenario, and let’s just touch on that a bit. You know, we’ve got default rates going to 3% over the next year, so a little bit more conservative than Moody’s anticipating a 2.7% default rate over 12 months. We’re using a recovery rate that’s more in the line with the long term average of 40 cents in the dollar, and we’re keeping spreads constant and treasuries constant. We’re not too concerned about treasury yields going higher, although the sensitivity that high yield bonds have to any moves in treasuries is certainly higher today than it was a year ago, because spreads are tighter. In this environment we have a 5.4%. So this is more of your coupon clip minus defaults type of environment. We think this is certainly much more realistic over the year. Now we already have of course 1½% for the year, and so we’re anticipating somewhere of around a 6 or 7% year in total return for high yield.

Scenario three is certainly much more of an optimistic case. You know, we kind of use the spread data if you will of 0.5, meaning that spreads tighten in 100 basis points in an environment with treasury yields increasing by 50 basis points. And in this environment where default rates actually go down a little bit to 2%, we have a total return of 7.9%. So certainly feasible but we do think it’s probably lower probability than scenario two.

So that’s kind of where we’re looking at high yield returns being over the next 12 months. Somewhere in that range of scenario one through scenario three, with our heaviest probability more in line with scenario two.

If we go to the next page, we wanted to just take a minute and talk about how high yield bond returns have performed within low to medium economic growth. And you’ll see here when you look at high yield bonds and the different quality tiers, BBs, B, CCCs, really the best sweet spot in GDP growth in the US has been 1½ to 2½%, you know, kind of the Goldilocks economy of not too hot, not too cold. We’ve had a very accommodative Federal Reserve of wanting to keep rates very low until unemployment falls from the current 7.9% to 6½%, and of course with the caveat that as long as inflation remains very low. And of course we’re looking at last year’s actual GDP of 2.2% in a consensus forecast for this year at about 1.8%. So we still think we’re in a pretty good spot economically for high yield bonds to do well.

If we go to the next page, I touched on refinancing a little bit earlier, and I wanted to spend a couple of minutes on this because this is a very important trend to understand why default rates continue to be so low. And you’ll see in a lot of the media that we’ve had a lot of issuance, right, $365.7bn in issuance, and that scares a lot of people when you talk about supply, can we absorb the supply with the demand. Now keep in mind this is a gross number, because a lot of this issuance has been used for refinancing, so on a net basis supply might not be as large as that headline number. Okay, just keep that in mind as we go through some of these notes here. You know, 88% has been US dollar denominated, and that compares to a market, that’s about 82%, so continues to be really denominated by US dollar issuance where only 9% has been euro denominated and the remaining 3% has been in sterling and Canadian dollar. So the market today is about 82% dollars and the new issuance has even been higher.

Last year we had very good quality issuance out of BBs and Bs, but towards the end of the year we had a pretty dramatic pick up in lower quality issuance, mainly in the CCC category. So for the year we had about 19% in CCC issuance. This year we’ve had in the month of January $53bn of issuance, so we’re on a very pace to potentially beat last year’s record. On a quality distribution basis, it actually looks relatively similar to last year, with a little bit more in BBs, 37% to be exact, CCCs are staying relatively constant at around 18%.

Bank loans: bank loan issues last year, nearly $300bn, continuing to just be the hot asset class for this year. You know, we’ve seen in the past few years a few outflows actually, about $1½bn out of high yield bonds, and we’ve had about over $2½bn come into bank loan funds. So a lot of the demand for yield is going into bank loans because of not only their secured feature but their floating rate coupon feature as well.

High yield bond and bank loan new issue proceeds, so you look at it in totality and last year about 50% was used for refinancing. So this is why I made the mention that, you know, when you look at that big supply number, half of that is refi. And then also 14% for general corporate purposes, and 32% for acquisitions, LBOs and dividends - the largest chunk of that being acquisitions; LBOs are only contributing about 8% of that. Now there’s been a lot of headlines about LBOs these days, you know, and it really presents downside mainly for investment grade companies, but not entirely of course. So we want to keep our eye on this trend because this is certainly a trend in the marketplace where CFOs might be starting to lever back up. 8% in 2012 of the market’s new issues were LBO oriented; 8% in January, so we’re not seeing an increase over last year yet. Keep in mind in 2007 we hit a recent peak of 39%; 39% of all the new issues in 2007 were LBOs. So we certainly have a way to go until we get to that level that we saw in 2007.

So the next page really just shows you what that refinance total has been over the year, and you’ll see over the last four years, and into this year and 2013, about two thirds of all that high yield new issuance has been used for refi.

What’s been the result of that? If you go to the next page the result of that has been an extension of maturities. And I know we touch on this a lot but this is so important to know that over the next several years only about 5% of the high yield market is actually maturing, and this graphs shows you the maturity schedule profile change from the end of the year in 2008 through the end of the year in 2012. There’s been a reduction for example of maturities in 2014 by $320bn. And the wall of maturities that existed about two years ago has really been spread out quite well over 2017 and beyond. So we see pretty good balance sheet strength because of this extension of maturity, and companies have been expanding when they can and not only cleaning up their balance sheets but lowering their overall cost of capital in their interest expense in the meantime.

So that’s a little bit about the fundamentals and why we do believe that that will support a continued very low default rate in the foreseeable future. This next page, just wanted to touch on two important characteristics of the high yield marketplace that are still intact. And page 11 illustrates the security market line where you’ve got on your vertical line the annualised return, and on your horizontal your volatility or risk. And high yield bonds place very well. In fact when you look at high yield bonds relative to the three major equity indexes presented here, the S&P500, the Wiltshire 5000 and the Russell 2000, high yield bonds have performed in line with those equity markets but with about half the risk.

So this is one of the reasons why we’re seeing a lot of the institutional investors in high yield substitute it for the equities. So you’ve gotten very similar types of returns but with a lot less risk. So we do view high yield bonds as much more of an equity surrogate than fixed income, because it does have more of an equity type of return profile. And on the next page when we do look at high yield as more of a separate asset class, we compare its correlations to other asset classes. And you’ll see that its correlation to governments, the number circled at point one, is very very low. Historically high yield bonds have very little interest rate sensitivity, where governments of course do, and in fact investment grade credit has very high interest rate sensitivity, its correlation to treasury is 0.9.

So this is why high yield bonds probably deserve much more of an equity mention rather than a fixed income mention, a kind of a soft equity. But let’s just take a pause there because earlier on we were mentioning about the sensitivity to interest rates, and that correlation is somewhat dependent on spread levels. And that’s what this chart on the right shows you is that as spreads tighten in you’re going to see that correlation to rates start to increase. And typically when spreads go inside of 500 the correlation goes positive. And we’re just inside of 500 basis points today.

So this graph, it might be a little bit misleading, because it’s a 52 week trailing correlation, and it’s negative on a trailing basis, the correlation’s negative, but given that where we’re at today we would expect this to go in a positive territory over the next few months, just because of today’s spread levels inside of 500. So we’re not alarmed by it, we do think that that correlation will probably be a little bit higher, you know, maybe in the 0.3/0.4 territory, certainly not anything like the investment grade correlation rates, but it’s certainly a new risk that we need to be very sensitive to in our portfolios.

And then lastly I just wanted to talk about some of the potential risks in the marketplace, some of the benefits and then quickly our strategy in our portfolios. Potential risks of course that valuations are priced to perfection. We’ve got spreads inside the long term average, yields very low, really nowhere to go right but down is what everyone is saying. But that’s why we do believe that they’re not going to do down unless default probability increases, and we don’t see any signs for that. We might see some short term volatility here but nothing that’s going to cause these companies to really experience major defaults over the next year. Balance sheets are very clean, cash balances are very high, and earnings are very strong servicing debt at a very high level. Sensitivity to rising rates, we just touched on this.

Now we’re still expecting a great divide, high yield to outperform treasuries and anything that’s more fixed income or investment grade related. However today’s rise in rates will certainly have more of a negative impact on high yield returns than they would have a year or two ago, just because overall spread levels are tighter and the correlation of rates is much lower. And we touched on that in our scenario analysis, we went through some of those examples, so we want to be very aware of that.

The great rotation impact on high yield valuations, you know, whether or not this great rotation will ever come, we have seen signs of it this year as the demand for equities year to date has been very strong, and the argument goes that the flows will go into equities and come out of high yield. However in my 22 years in the high yield market there are very seldom periods where equities rally and high yields don’t rally. High yield of course as an equity surrogate will normally be supported very well by a strong equity market. So that’s always something to keep in mind, that we don’t anticipate this to be a major detraction of returns going forward, but it could be a technical that we want to be aware of where you might have some outflows.

Now a couple of facts just to be aware of that might be related to the great rotation. You know, in the past four years we’ve had a trillion dollars move into fixed income, and about a half a trillion dollars come out of equities, so the argument goes some of this might be reverting to the mean. And then also pension funds five years ago had the typical 60% allocation to equities, and now it’s more around the range of 30% allocation to equities. And these pension funds, many of them are still assuming a 7 to 8% hurdle rate. So the argument goes with the great rotation that pension funds will have to reallocate more to the equity market.

So that’s some of the argument there. We’re not too worried about it because as mentioned we do anticipate that if the equity markets do well the high yield markets will do relatively well too. And then the increasing speculative element creeping into the market, we touched on this a little bit. You know, the market’s always cyclical. We do think that over time there’s going to be lower quality issuance, releveraging of balance sheets through your dividends or LBOs or leveraged transactions. Are we worrying about it right now given today what we see? No, not at all. The good news is certainly we don’t have to buy those issues when they come to the market, we can let the other managers buy those. But we certainly want to keep our eye on the ball because if the overall market is becoming more leveraged that will certainly impact the fall probability.

The benefits of course, we touched on the support of fundamentals on a macro and a micro basis, very supportive Fed, GDP estimates are in line with a strong performance in the marketplace, and at a micro basis the company fundamentals are the strongest that I've seen in 22 years. This really translates into the second bullet point of low default risk and a reduced risk of losing capital in this marketplace. The yield is low but it’s in a low yield environment, and it’s in a negative real yield environment, and so for those investors that do need positive real yield and they’re comfortable with the fundamentals supporting that real yield, the high yield asset class is a very valid asset class, even after these valuations. And then we also touched on the very strong demand from high yield bonds globally, not only out of the US or Europe but we’re seeing increasing demand come out of the Asian economies.

What is our strategy? Well, we are emphasising Bs more than BBs in our portfolios, and I know we typically have a higher quality tilt. We have an average quality of B+ in our portfolios, and will typically be between BB- and B+ as an average quality. But because of that increased interest rate sensitivity and that BB quality tier, you know, we’re just a little bit hesitant to overweight that BB quality tier in this marketplace. The average spread on a BB today is 338 basis points, so there is definitely some interest rate correlation there. And because we have very low default rates we’re very comfortable taking on a little bit more credit risk in this marketplace in Bs especially.

We have a strong overweight in the US marketplace, and underweight in European and Asian high yield. Our European weight is about 15%, our Asian weight, which is in dollars, is about 1%. So we are pretty bulled up on US right now, and many, I guess the big supporting reason for that is just we’re more confident in the overall macro environment, the overall consumer coming back, the housing market, the consumer spending and that low to moderate US GDP growth within the US.

One of the things we’ve done in our portfolio is to bullet point three, because we have seen valuations relatively toppy in here on a price basis, we’ve diversified our top holdings a little bit more. Whereas a year ago you’d see some of our top holdings close to 2-2½% now many of our top holdings are below 2%. So we’ve diversified them a little bit just because there’s more downside, there’s more downside on an individual bond basis than before given today’s valuations. And then also on an industry basis we are overweight in the consumer industries and underweight financials. We have a pretty significant underweight in financials, banking, insurance, mainly banking, and some of the finance type of sectors as well.

So with that I think I’ll close. We touched a little bit about where it’s been, where we believe it’s going, and our strategy going forward, and we’d be very happy to answer questions.

Martin Gawne: Yes, we’d encourage you at this point to submit any questions that you have. We’re going to pause for just a moment. We do have a great question for you, Todd, and that is can you comment on the types of defaults that have recently occurred, which geographies and sectors are of most concern?

Todd Youngberg: Yeah, well there haven’t been too many defaults just recently of course, just because defaults are so low. So it’s very idiosyncratic at this point, and we don’t have a ton of worry about a specific industry or region at this point. We are a little bit more concerned about European defaults relative to US defaults, just because of the overall macro environment in Europe relative to the US. So we’re not really focusing on specific geographies and industries when it comes to default risk; it’s really at the security level. And so we’re taking a look at some of the energy names I suppose that might be more linked into natural gas, although natural gas has certainly come off of its lows, and so we think the default risk associated with that has lessened. You know, the old TXU or Texas Utilities that’s certainly one where we’re keeping an eye on as well. So it’s going to be very idiosyncratic going forward, and not so much in an industry basis like it was back when the telecom bubble burst these days.

Martin Gawne: Todd, you summarised some of the potential risks to the high yield market, and I just wanted to ask you is there any one in particular that would be of most concern to you or that you’re really monitoring?

Todd Youngberg: Yeah, the main risk of course in high yield investing is making sure that you understand the full probability, and forecasting that appropriately. So spreads typically are going to forecast that in advance, and we have pretty good comfort that default rates are not going to go up significantly, so we don’t think that’s the main risk of the marketplace. You know, you could have some volatility with some of the macro events, whether or not some of the sovereign risk comes back into the European marketplace. You know, actually you’ve seen a few weeks ago the news came out of both Italy and Spain, so that could potentially cause some volatility.

But the new risk really these days that we’re keeping a closer eye on is this interest rate risk. If we do start to see rates increase, because they really can’t go too much lower, the five year of course is just inside of 0.9%, that increase in rates will certainly have a negative impact on high yield bonds. Now we don’t think rates are going to go significantly higher, but the sensitivity of that correlation to rate movement these days is certainly in the positive territory. So I would say the impact of that risk is relatively low, but the probability of it is probably higher than the probability of default risk.

Martin Gawne: Thanks Todd. We’ll pause for just one moment here to provide one last opportunity for any questions. And with that we’ll go ahead and end the presentation and close today’s call. We’d like to thank everyone for joining us today. If you have any questions or would like to receive additional information about our global high yield strategy please do not hesitate to contact your Aviva Investors Relationship Manager. Thank you Todd and thank you all.

Important Information

This document (the “Presentation”) is being provided on a confidential basis by Aviva Investors North America, Inc. (“AINA”).Accordingly, this Presentation may not be reproduced in whole or part, and may not be delivered to any other person without the consent of AINA. This Presentation is not a solicitation of any offer to buy or sell any security or other financial instrument or to participate in any trading strategy.

AINA represents the North American region of the global organization of affiliated asset management businesses operating under the Aviva Investors name. AINA is comprised of three legal entities, each of which is an indirect subsidiary of Aviva plc: (i) Aviva Investors North America, Inc., an SEC-registered investment advisor with offices in Boston, Des Moines IA, Chicago, and New York, (ii) River Road Asset Management, LLC, a registered investment advisor headquartered in Louisville KY, and (iii) Aviva Investors Canada Inc., the Aviva Investors affiliate headquartered and operating in Canada.

The name “Aviva Investors” as used in this Presentation refers to the global organization of affiliated asset management businesses operating under the Aviva Investors name. Each Aviva Investors affiliate is a subsidiary of Aviva plc, a publicly-traded multi-national financial services company headquartered in the United Kingdom.

This Presentation is distributed for informational purposes only; it is not intended to be individually tailored investment recommendations or to offer tax, regulatory, accounting or legal advice. You should determine, in consultation with your own legal, tax, regulatory and accounting advisors, the economic, legal, tax, regulatory and accounting characteristics and consequences of any investment strategy.

Past performance is not indicative of future results. There can be no guarantee that any investment strategy discussed in this Presentation will achieve its investment objectives. As with all investment strategies, there is a risk of loss of all or a portion of the amount invested. No chart, graph, or formula can by itself determine which securities an investor should buy or sell. All amounts herein are USD unless otherwise indicated.

This Presentation contains the current opinions of AINA and is not intended to be, and should not be interpreted as, a recommendation of any particular security, strategy or investment product. Such opinions are subject to change without notice. This Presentation is distributed for informational purposes only and is not intended to be a recommendation or investment advice. The information herein is based on sources which AINA believes to be reliable but is not guaranteed to be accurate or complete. Individuals identified in this Presentation are employees of AINA or other Aviva Investors affiliates. No Aviva Investors affiliate is engaging in or holding itself out as engaging in the business of advising others as to investing in securities or the business of buying or selling securities in any jurisdiction where it is not qualified to do so.

Any statement of return or other performance by an index is not a representation or assurance that the information or performance attributed to the index was accurately compiled or published; Aviva Investors has not independently verified index-related information. Index returns are provided to represent the investment environment existing during the time periods shown. For comparison purposes, an index is fully invested, which includes the reinvestment of dividends and capital gains, but index returns do not include any transaction costs, management fees, or other costs that would reduce returns. Composition of each separately managed account portfolio in a composite may differ from securities in the corresponding benchmark index. An index is used as a performance benchmark only, as Aviva Investors does not attempt to replicate an index. The prior performance of an index will not be predictive of the future performance of accounts managed by Aviva Investors. An investor may not invest directly in an index.

Slides:

0|_BLANK_
12|http://files.asset.tv/new/uploads/files/slides/8940/8940_slide01.jpg
144|http://files.asset.tv/new/uploads/files/slides/8940/8940_slide02.jpg
459|http://files.asset.tv/new/uploads/files/slides/8940/8940_slide03.jpg
517|http://files.asset.tv/new/uploads/files/slides/8940/8940_slide04.jpg
673|http://files.asset.tv/new/uploads/files/slides/8940/8940_slide05.jpg
945|http://files.asset.tv/new/uploads/files/slides/8940/8940_slide06.jpg
1179|http://files.asset.tv/new/uploads/files/slides/8940/8940_slide07.jpg
1243|http://files.asset.tv/new/uploads/files/slides/8940/8940_slide08.jpg
1471|http://files.asset.tv/new/uploads/files/slides/8940/8940_slide09.jpg
1490|http://files.asset.tv/new/uploads/files/slides/8940/8940_slide10.jpg
1552|http://files.asset.tv/new/uploads/files/slides/8940/8940_slide11.jpg
1627|http://files.asset.tv/new/uploads/files/slides/8940/8940_slide12.jpg
1745|http://files.asset.tv/new/uploads/files/slides/8940/8940_slide13.jpg
2178|http://files.asset.tv/new/uploads/files/slides/8940/8940_slide14.jpg
2389|http://files.asset.tv/new/uploads/files/slides/8940/8940_slide15.jpg

Advanced

Slide Mode:

On

Structured:

Nonstructured

Company info:

Contact: Aviva Investors

Show more