Sydbank EM Value Fund Share class Z1(EUR) Monthly Report – September 2014 Institutional

Sydbank EM Value Fund
Share class Z1(EUR)
Monthly Report – September 2014
8 October 2014
Institutional
Fund Objective & Investor Profile
The Fund will seek to invest directly and indirectly through derivatives in government fixed income securities and currencies, with a focus on Emerging Markets.
The Fund seeks to provide an attractive, positive return consistent with the
preservation of capital. There is no guarantee that the Fund will achieve its objective and a capital loss may occur. The Fund is targeting professional investors
seeking active investment management with a focus on absolute returns and a
superior risk-reward profile to a long position in government bonds from mature
markets.
Historical return of strategy, gross of fees, %*
35%
30%
25%
20%
Fund Manager Report
Sydbank EM Value Fund generated a gross of fee return of minus1.83% in September. In local currency increasing interest rates and weakening FX made Brazil
the bottom contributor detracting 68bps from return. Nigeria and Ghana on the
other hand were the top contributors.
15%
10%
5%
In hard currency bonds Venezuela were the biggest bottom contributor detracting
56bps in September. Argentina and Seychelles were the top positive contributors.
For further attribution information please see the tables on page 3.
0%
Returns net of fees, end of month
Fund Return
Mth
YtD
Fund
-1.78%
5.08%
6 Mth
1 Yr
Incp*
3.63% 5.44%
20.33%
Sydbank EM Value Fund - Key Figures*
Ratio, end of month
Portfolio strategy and changes
The fund’s net long position at the end of the month was slightly higher. In September the fund added positions in local currency in Ghana and Zambia in order
to take advantage of high interest rates in those countries. The fund closed the
short FX position in ruble.
In hard currency the fund added exposure in Venezuela, El Salvador and entered
a position in a state owned oil company in Ecuador. The holdings in Iraq were reduced due to the uncertain political situation. Seychelles and Ghana were reduced
as well.
September
Change
August
NAV (EUR) end of month
107.14
-1.94
109.08
Fund AUM (EUR mln)
143.79
-2.61
146.40
Annualized volatility 3y, %*
3.04
0.00
3.04
Share class type
Sharpe Ratio, 3 yr. (wkl. data)*
1.88
0.28
1.60
Denomination and hedged classes EUR (Z1), USD (Z2), GBP Z3), CHF (Z4)
Fund YTM, %
7.95
0.99
6.96
Dealing Day / NAV date
Weekly, 12:00 (GMT) every Wednesday and end-month.
Spread Duration
4.51
-0.04
4.55
Anti-Dilution-Levy (ADL)
59.03
4.50
54.53
ADL will be paid into the Fund according to the rules set
out by the Irish Central Bank and will not normally exceed
0.75% of the NAV except under exceptional conditions.
Dealing of shares in the Fund
12:00 (GMT) by order to the Fund Administrator (HSS)
-
Subscriptions
1 business day prior to the Dealing Day
-
Redemptions
5 business days prior to the Dealing Day
Fund net long pos., %
Key Fund Information
Fund name
Sydbank Emerging Markets Value Fund
Investment Universe
Global Emerging Market Debt & FX
Benchmark / Style
None / Absolute Return
Security guidelines
Key Investor Information – Share Class Z
Institutional (or to certain other categories of investors
covered by an agreement with the Investment Manager)
Min 1st subscr. / Min holding
500,000 / 250,000 of the relevant share class currency
Min subsequent transaction
50,000 of the relevant share class currency
Sovereign & Quasi Sovereign only
(no corporate bonds)
Management & Performance fee
0.50% p.a. + 5.0% above high watermark
ISIN CODE
IE00B3Y4SB54
Administration & opr. expenses
0.15% p.a. (capped maximum)
Launch date (strategy) / (fund*)
31.08.2010 / 27.11.2012
Maximum Total Exp. Ratio (TER)
1.15 % p.a. (including performance fee and admin costs)
Fund type / Domicile
UCITS IV / Ireland
Marketing Registration
Switzerland, UK (more details at www.fundinfo.com)
EUR
Swiss Representative
Société Générale, P.O. Box 1928, 8021 Zürich
UK Representative
KB Assoc. LLP, 42 Brook Street, London W1K 5DB, UK
Base currency
*)Note on returns:
The return history for the Fund reflects the change to the fee load effective in March 2014 from the previous 1.5%/15% to the current 0.5%/5% institutional share offering.
The return history for the Fund also includes the Danish UCITS fund named Sydinvest EM Value Fund (ISIN DK0060406916) which was launched on 31.08.2010 pending launch of the Irish UCITS fund
(Sydbank EM Value Fund; ISIN IE00B3Y4SB54) on 27.11.2012 with an identical investment strategy.
Investor Relations Contact
Christian Farø
Senior Inst. Sales Manager
Sydbank Emerging Markets
christian.faroe@sydbank.dk
Phone: +45 7437 3722
Syd UCITS Funds plc (Ireland)
2nd Floor, Beaux Lane House
Mercer Street Lower, Dublin 2
Ireland
Fund Administration:
HSBC Securities Services (HSS), Dublin
Investment Manager
Sydbank A/S, Emerging Markets
Peberlyk 4 · DK-6200 Aabenraa
Denmark
www.sydbank.com / www.sydbank.dk
Important disclosure for investors
This material is aimed at clients of Sydbank and may not be published or further distributed without the express consent of the Bank. The material has been prepared on the basis of information from sources which Sydbank
finds reliable. Sydbank assumes no liability for defects, including any source errors, misprints or errors of calculation, or for any subsequent changes in assumption. Any recommendations in the material based on previous
returns are not considered a reliable indicator of future returns. Recommendations in the material reflect the Bank’s expectations on the basis of market-related issues and are not based on fundamental analytical issues.
Any investment decisions cannot be based on this material alone but the material can be used in connection with advisory services provided by Sydbank where also the individual circumstances of the client must be included. Sydbank accepts no responsibility for losses which may have any direct or indirect connection with transactions made solely on the basis of this material.
The Bank may have acted on the basis of this material prior to its distribution. Sydbank is under the supervision of the Danish Financial Supervisory Authority, Århusgade 110, DK-2100 Copenhagen Ø.
1
Sydbank EM Value Fund
Share class Z1(EUR)
Monthly Report – September 2014
8 October 2014
Emerging Market Debt Markets - September
In September EM bonds were generally under pressure. In hard currency a combination of increasing US Treasury yields and widening
EM government credit spreads led to losses of -1.93% for JPM EMBI Global Diversified (hedged to EUR). The spread widened 18bp to
299bp and the benchmark yield increased 31bp to 5.40%. Venezuela hard currency bonds were huge underperformers in September,
shedding almost 11%. Local currency bond yields increased by a total of 21bp to 6.74%, which produced a return of -0.66% before currency fluctuations. EM bonds issued in local currencies returned -5.11% for JPM GBI-EM Global Diversified unhedged to USD (and 1.06% unhedged to EUR) reflecting a stronger USD versus many EM currencies and the EUR. Interest rates in Brazil, Turkey and Nigeria increased significantly, whereas Russian and Polish rates decreased.
Venezuela continues to underperform as many investors
have simply lost patience with President Maduro’s
leadership or lack thereof. Ukraine under pressure as well.
Market and Asset Class Outlook
The ECB refrained from outright quantitative easing but introduced
a framework for ABS purchases. We think its effect will be limited
on bond yields from here as it is difficult to see the plan being effective enough. It is clear however, that the intention is to weaken
the Euro as policy tool, given continued weak macro data. Continued speculation of outright government bond purchases by the
ECB has led to a weaker euro, thus helping EMFX versus that
cross despite a challenging environment for EMFX versus a
stronger USD. USD strength across the board is leading to risk-off
concerns as it automatically reduces commodity prices, with
knock-on effects for EM commodity producers. Weakening EMFX
causes inflationary concerns per se, whilst the same risk-off environment leads to capital flight, further enhancing the vicious cycle.
We are currently in risk-off mode for EM and the FX side seems
most vulnerable.
There has been some progress in the Ukraine-Russia crisis with a
series of ceasefires starting to hold for longer than usual and
some tentative signs of more independence being given to the
eastern regions. We see a default in Ukraine in the next 12-18
months. Naftogaz is expected to pay its Eurobond maturity one
day late. We speculate that this was to avoid weakening the
hryvnia prior to month-end as Russia wants to use Q3 data to establish Ukraine’s official debt to GDP figures. These are important
as Russia can trigger a default if Ukraine’s debt to GDP rises
above 60%.
Venezuela hard currency bonds were huge underperformers in
September, shedding almost 11%. Slow movement on FX reform,
discussions about selling Citgo, upcoming international oil arbitration awards and talk of default by a respected Harvard economist
led to further losses in September. We believe Venezuela will
make bond payments in 2014. 2015 is fairly light in terms of redemptions so we would expect a rally there despite the fundamental economic mismanagement. 2016 will be very challenging, especially if oil prices drop further.
Both FX and local rates in Brazil have been under pressure during September. Neves’ second place in the first
round has provided some relief.
After putting on a long Ghana bond and fx position, we saw some
quick payback as the FX finally reverted its precipitous decline.
Ghana continues to signal a 3 year IMF will be agreed in January
2015. Markets have responded positively to the IMF deal, and we
have seen a stabilization in the markets for Ghanaian assets. The
FX has now appreciated 20% since the low and local bond yields
have fallen from 25% to 21%. Ghanaian hard currency bonds
have benefitted as well. In September Ghana took advantage of
the improved situation and issued a USD bond.
Brazil is set for a presidential election over two rounds on 5th &
26th October. Initial optimism that incumbent President Rouseff
would lose to opposition candidate Marina Silva has faded with a
bang as Dilma Rouseff’s lead in the polls has increased significantly in the last two weeks. This is bad news and has lead to
BRL FX declining 8.6% in September and local bond yields increasing 100 bps. Surprisingly, following the first round Silva is
now eliminated from the presidential election as she came in only
third after both Rousseff and Neves. Neves is seen as a more
market friendly reform oriented candidate. Brazil’s economy is
struggling and its investment grade rating is under threat: GDP fell
0.6% QoQ in 2Q14 as the industrial sector is in stagnation, investments are dropping like a stone and business confidence has
declined to levels not seen since 2008. The real challenge though
is the lack of fiscal restraint as the government keeps sliding on its
commitment to meet primary fiscal surplus targets. The main
strategy of the PT has been to kick the can down the road as real
fiscal change in Brazil is dependent on fiscal reforms and not just
about tweaking the budget. The federal budget’s rigidity precludes
a rapid fiscal adjustment (apart from energy subsidies and subsidised BNDES lending). No matter who wins the election, a fiscal
adjustment after the elections is of paramount importance. Otherwise, we would expect to see an even weaker BRL than we are
seeing currently.
2
Sydbank EM Value Fund Attribution of Returns
September 2014*
Strategies and expenses
Selected Long
Frontier EM component
Global EM component
Macro Hedge
Relative Value
EURUSD hedge
Other (residual)
Attribution (before costs)
Total Cost
Total Net of Fee Attribution
-0.62%
0.13%
0.05%
-0.44%
0.47%
-0.76%
-0.29%
-0.62%
0.13%
0.05%
-0.44%
0.47%
-0.76%
-0.29%
Total
Fund
-0.78%
0.21%
-0.99%
0.13%
-0.08%
-1.30%
0.21%
-1.83%
0.05%
-1.78%
Total
0.11%
0.13%
0.06%
-0.10%
0.01%
0.01%
-0.68%
Total
Fund
0.19%
0.15%
0.13%
0.12%
0.10%
-0.10%
-0.13%
-0.18%
-0.56%
-0.71%
Bonds
-0.49%
0.35%
-0.84%
-0.14%
External debt
CDS
Futures
-0.01%
0.05%
-0.01%
0.05%
0.09%
0.05%
-
Total
-0.45%
0.35%
-0.80%
0.09%
-0.08%
Local debt ad FX
Bonds
FX
-0.42%
0.08%
-0.13%
-0.01%
-0.28%
0.09%
0.89%
-0.84%
-
Total
-0.33%
-0.14%
-0.19%
0.04%
-
Attribution of Returns by Country
Top & bottom 5*
Countries (best / worst)
Ghana
Argentina
Nigeria
Seychelles
Mexico
South Africa
Indonesia
Costa Rica
Venezuela
Brazil
Bonds
0.08%
0.15%
0.12%
-0.01%
-0.01%
-0.18%
-0.19%
-0.56%
-0.04%
External debt
CDS
Futures
0.05%
0.02%
0.04%
-
Total
0.08%
0.15%
0.12%
0.04%
0.00%
-0.14%
-0.19%
-0.56%
-0.04%
Local debt ad FX
Bonds
FX
-0.00%
0.11%
-0.01%
0.14%
-0.04%
0.10%
0.82%
-0.92%
0.01%
-0.00%
-0.00%
0.01%
-0.44%
-0.24%
Attribution of Returns by Strategy Type
Top & bottom 3*
Selected Long - Frontier EM
Strategy
Exp.
(Best / worst)
Currency
Weight; %
Argentina 31.12.2033
USD
1.45%
Seychelles 01.01.2026
USD
5.27%
Ghana (STABAN)
GHS
0.51%
04/24/2017
Venezuela 15.04.2020
USD
0.77%
(USD)
PERUEN 31.05.2025
USD
2.10%
Brazil 15.08.2050
BRL
3.38%
Strategy
(Best / worst)
USD/THB
Mexico CDS 03.18
Mexico CDS 09.19
Bahrain CDS 09.18
Hungary CDS 03.18
EUR/HUF
Macro Hedge
Exp.
Weight; %
Currency
(Short)
THB
-3.27%
USD
-3.23%
USD
-2.14%
USD
-3.97%
USD
-2.05%
HUF
-2.96%
Attribution
0.14%
0.12%
0.11%
Selected Long - Global EM
Strategy
Exp.
Weight;
(best / worst)
Currency
%
EUR/MXN
MXN
4.70%
Nigeria 29.06.2019
NGN
2.14%
Attribution
0.07%
0.04%
EUR/CLP NDF
CLP
1.24%
0.02%
-0.02%
PDVSA 16.05.2024
USD
1.76%
-0.19%
-0.04%
-0.46%
PDVSA 12.04.2017
Brazil 01.01.2023
USD
BRL
1.92%
3.31%
-0.25%
-0.30%
Relative Value
Exp.
Currency
USD
USD
Weight;
% (L+S)
-2.65%
-2.38%
Attribution
0.00%
-0.09%
Attribution
0.03%
0.02%
0.02%
-0.00%
-0.01%
-0.02%
Strategy
(best / worst)
ESKOM vs SOAF CDS
PERTIJ vs Indo CDS
*) Important note:
Performance attribution is calculated in EUR. FX hedges of USD bonds are part of the selected longs. Local currency bonds are FX
hedged using correlations with USD and included in "EURUSD hedges".
3
Sydbank EM Value Fund Portfolio Summary
As at 30 September 2014
Exposure by Strategy
Strategy
Selected Long
Frontier EM component
Global EM component
Macro Hedge
Relative Value (RV)
“Long leg” RV
“Short leg” RV
Total Exposure
“Long leg” Total
“Short leg” Total
Bonds
59.44%
42.52%
16.92%
3.49%
3.49%
62.93%
62.93%
-
External debt
CDS
2.72%
2.72%
-25.24%
-8.98%
-8.98%
-31.50%
2.72%
-34.22%
Total
62.16%
42.52%
19.65%
-25.24%
-5.49%
3.49%
-8.98%
31.43%
65.65%
-34.22%
Local debt ad FX
Bonds
FX
Total FX
34.42%
-1.08%
33.34%
21.77%
21.77%
12.65%
-1.08%
11.57%
-5.73%
-5.73%
34.42%
-6.82%
27.61%
34.42%
5.51%
39.93%
-12.32%
-12.32%
Total Fund
Total Credit
Total Exp.
96.59%
95.50%
64.29%
64.29%
32.30%
31.21%
-25.24%
-30.97%
-5.49%
-5.49%
3.49%
3.49%
-8.98%
-8.98%
65.85%
59.03%
100.07%
105.58%
-34.22%
-46.54%
Bonds
6.53%
6.09%
1.80%
4.84%
4.47%
-
External debt
CDS
Total
6.53%
6.09%
1.80%
4.84%
4.47%
-4.20%
-4.20%
Local debt ad FX
Bonds
FX
Total FX
5.26%
5.26%
6.18%
-2.99%
3.19%
0.25%
0.25%
4.39%
4.39%
-
Total Fund
Total Credit
Total Exp.
6.53%
6.53%
6.09%
6.09%
5.26%
5.26%
7.98%
5.00%
4.84%
4.84%
4.72%
4.72%
4.39%
4.39%
-4.20%
-4.20%
Exposure by Country
Country
(Largest “long” & “short”)
Argentina
Venezuela
Uruguay
Brazil
Seychelles
Costa Rica
Nigeria
Philippines
Exposure to countries included in JP Morgan NEXGEM
External debt total
Positions “long” & “short”
Long strategies
Short strategies
Net exposure
Local debt and FX total
27.93%
27.93%
Total Fund Exp.
7.53%
7.53%
35.46%
35.46%
Portfolio Risk Summary
External debt
Duration by Strategy
Credit
Weight
Spread
Duration
Selected Long
Macro Hedge
Relative Value (RV)
Total
62.16%
-25.24%
-5.49%
31.43%
5.66
3.71
-1.30
8.44
Local debt
YTM
6.88%
0.91%
-1.73%
13.17%
100 bps
shift
Bond
Weight
-3.52%
0.93%
-0.07%
-2.66%
34.42%
34.42%
Duration
YTM
5.40
11.06%
5.40
11.06%
100
bps
shift
-1.86%
-1.86%
Total
weight
96.59%
-25.24%
-5.49%
65.85%
Sydbank EM Value Fund’s Risk/Reward Summary
Risk / return indicator
Volatility 3 years, %
Sharpe Ratio 3 years
Fund Beta 3 years
Yield to Maturity (YTM), %
Treasury Duration
Spread Duration
Ann. Return 3 years, %
EM Value Fund
(USD)
JP Morgan
EMBI GD (USD)
JP Morgan
GBI-EM (USD)
JP Morgan
NEXG (USD)
3.04%
1.88
1.00
7.95%
4.68
4.51
5.79%
6.91%
1.14
0.20
5.40%
6.74
6.74
7.95%
9.99%
0.21
0.12
6.70%
4.78
4.78
2.21%
7.38%
1.89
0.19
6.76%
6.17
6.17
14.06%
4