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Challenger Life

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									Challenger High Yield Retail Fund




Presented by:              September 2003
What is the High Yield Fund?

   A fund seeking to outperform cash and Fixed Interest markets.
   Providing a greater return than bonds and less risk than equities
   With a significant income component
   Tax Benefits




                                                                        2
What are the High Yield Fund’s Assets?

Any securities which can be analysed for their cashflow
characteristics including:
 Hybrid Securities
 Corporate Bonds
 Asset Back Securities




                                                          3
What is a Hybrid Security?

 A major part of High Yield Funds are hybrid securities
 Hybrid securities are issued by Australian Corporates and have
   both debt and equity (share) characteristics
 Includes Investments
      reset securities
      convertible notes
      converting preference shares




                                                                   4
Examples of Listed Hybrid Securities
Issuer                      Type of Security
Southern Cross              Reset Securities
QBE                         Converting Preference Shares
Insurance Australia Group   Reset Securities
Amcor Investments Ltd       Reset Securities
Aristocrat Leisure          Convertible Notes
Macquarie Bank Ltd          Converting Preference Shares
Crown Casino                Capital Notes
Jupiters                    Reset Securities
Oil Search Ltd              Converting Preference Shares
David Jones                 Reset Securities
                                                           5
Trends Toward Hybrid / Debt Securities

 Diminishing supply of government bonds
 Trend away from bank oriented financing
 Corporate capital management becoming more sophisticated

The Future
 Leading to a growth in the issuance of high yielding fixed interest
   and hybrid debt/equities securities




                                                                        6
CBA Research – July 2003
The case for investing in lower rated investment grade credit

 “Under normal assumptions, lower grade credits clearly provide
   the best risk reward ratios”.
 “The further investors moved down the credit spectrum the better
   the risk/return trade off. In other words, the lower the credit rating,
   the better the return and the lower the volatility of returns”.
 “AAA was never the least volatile, or the optimal place to be”.
 “We (CBA) conclude that investing in bonds lower down the credit
   spectrum not only provides greater returns, but diversity and
   stability”.




                                                                             7
Where Does a High Yield Fund Fit?




                                    8
Where Does High Yield Fit?
 As a component of a client’s Fixed Interest or Alternative
    Investments sector allocation
                                      Alternative
                                     Investments          Australian Fixed
                                                              Interest
      Australian Listed
         Property




                                                                          Australian Cash



 International
    Equities
                                                    International Fixed
                                                          Interest
                    Australian Equities

                                                                                            9
Relevance of High Yield in Current Conditions

 Global economy is recovering
 Cash rates unattractive
 Global search for credit / yield products stems from equity market
   caution
 Declining Government Issuance
 Increased Investor appetite
 Corporates issuing via capital markets because banks adopting a
   different preference
 Diversification from equities, bonds and property

                                                                       10
Likely Impact of Rising Interest Rates

Healthy economic and credit conditions likely to prevail.
 Shorter Duration an advantage (average 1.8 yrs vs 3.7 yrs for
   bonds)
 Improving Corporate credit quality expected to co-exist at a time
   when interest rates are increasing – hence credit spreads to
   narrow
 Higher yield likely to provide additional buffer to interest rate rises

Conclusion:
High Yield Fund is more likely to outperform bonds

                                                                            11
Why Choose Challenger High Yield Fund?




                                         12
Philosophy

Challenger is an active manager of Australian high yield and hybrid
securities because we believe that the market is not perfectly efficient
and that pricing anomalies can and do occur

This is particularly true of the less-researched and less well
understood hybrid and high yield bond markets in Australia




                                                                       13
Investment Style

 Active bottom up securities selection
 Active top down macro approach
 Tight risk management framework




                                          14
Investment Process

                      MACRO

        Ideas &                               Portfolio
         Filters                            Construction


            Idea        Intrinsic Value        Portfolio
         Generation        Analysis           Construction



      300 - 400
    250 stocks        150 stocks          25 – 45 stocks
                                           50-75
       stocks                             stocks
            RISK MANAGEMENT STRATEGIES
                                                             15
Portfolio Construction Rules

 Number of stocks in portfolio 50-75
 Benchmarks are UBS Composite Bond Index, UBSW Core Credit
    and UBS Warburg Australian Hybrid Index
   Illiquid bonds no greater than 20% of portfolio
   No greater than 20% single industry exposure
   Maximum exposure to one investment is 6%
   Cash 0-20%




                                                              16
Portfolio Risk Controls

 Portfolio construction rules
 Triggers for review include:
      Changes in issuer’s share price
      Credit rating change
 Risk assessment: Probability of our analysis being correct and
   size of downside risk (Stress testing)
 Liquidity: Ensure portfolio has a mix of mature and new
   investments to ensure liquidity of overall portfolio is good
 Derivatives are available to manage risk


                                                                   17
 Fund as at 31 August 2003
No. of investments            75

Actual Cash holdings %        11.6 %

Largest investment            IAG Reset Preference Shares (5.29%)


No. of Industries             24

Fund size                     $487.3

Cash and Listed investments   72 %

Listed issuers                89%

Duration (years)              1.58
                                                                    18
    Diversification by Industry Sector
    Not more than 25% of fund value in any single industry

                                                             Banks                Chemicals
                       Oil & Gas
                                               Automobiles   3.61%                  0.12%   Construction &
                        3.69%
                                                  3.26%              Beverages               Engineering
                                     Real Estate                       0.84%
                                       8.88%                                                    1.26%
                   Multi-Utilities
                      6.39%                                                                   Containers &
                                                                                               Packaging
              Multiline Retail                                                                   6.44%
                   0.91%
          Metals & Mining                                                                    Diversified Financials
               6.47%                                                                                16.67%

                                                                                                       Diversified
                                                                                                   Telecommunication
       Media                                                                                            Services
       6.98%                                                                                             0.15%


                                                          Hotels                   Food Products          Food &
                                       Industrial                   Health Care        3.84%           Drug Retailing
                                     Conglomerates      Restaurants
              Insurance                                              Providers                             2.30%
                                         3.01%           & Leisure                 Gas Utilities
                15.34%                                     6.54%    & Services
                                                                                     2.44%
                                                                       0.86%
Calculated on exposure basis.                                                                                           19
Figures are as at August 2003
 Diversification by Security Type
 as at 31 August 2003

                                                        Floating Rate Notes
                      Credit Linked                             7%
                                                                              Income Securities
Credit Default Swap       Note        Cash Securities                               2%
        3%                 6%              11%
                                                                                        Mortgage Backed
                                                                                           Securities
    Converting                                                                                9%
 Preference Shares
        6%

Convertible Notes
      9%


      Capital Notes
           1%
                                              Annuity
               Bonds (Corporate)                               Reset Securities
                                                1%
                     10%                                            36%

                                                                                                          20
 High Yield Portfolio Top 10 Securities
 as at 31 August 2003

Issuer/Security Name                                 Weight   Type of Security

IAG Reset Preference Shares                           5.29%   Reset Securities

AMP Henderson POWERS                                  4.28%   Reset Securities

APN News & Media Limited Convertible Notes            4.23%   Convertible Notes
Amcor Investments Ltd (NZ) PACRS Reset Convertible
                                                      3.61%   Reset Securities
Notes
Lend Lease (US) Finance 7½% 15/07/05                  3.49%   Bonds Corporate

Macquarie Bank Ltd Converting Preference Shares       3.45%   Converting Preference Shares

AMP Reset Converting Preference Shares                3.42%   Reset Securities

RMS Trust 2002-1 Class B Bonds                        3.29%   Mortgage Backed Securities

Futuris Corporation Convertible Notes                 3.19%   Convertible Notes

Southern Cross FLIERS                                 2.62%   Reset Securities               21
How Has the Fund Performed*?
Inception date 3 July 2001 to 30 June 2003




                                                                                                                           Total
                                                                                                                          Return***
         Distribution
           Return
                                                                                                                        10.73% p.a
         6.33% p.a**
                                            +                           Growth
                                                                        Return
                                                                       4.40% p.a                      =
*Past performance is not necessarily indicative of future performance.
**The distribution was franked at an average of 15.56%.
***After all fees applying to Wholesale Class Units, excl. Imputation Credits since Date of Inception: 3 July 2001. Since ince ption figures are
   reported on a per annum basis.



                                                                                                                                              22
  Growth in $10,000
  Since Inception – to 31 August 2003

12500

                                                                                                         High Yield



11500
                                                 Jun. ‘02                                                                      Bonds
                                                 –0.07%



10500


                                   Sep. ’01
                                   –0.30%
 9500
                 Aug-01




                                                                              Aug-02




                                                                                                                                           Aug-03
                                                            Apr-02




                                                                                                                      Apr-03
                                        Dec-01




                                                                                                Dec-02
        Jun-01




                                                  Feb-02




                                                                     Jun-02




                                                                                                             Feb-03




                                                                                                                                  Jun-03
                          Oct-01




                                                                                       Oct-02



                                                                                                                                               23
  Performance – to 31 August 2003
                                       1 Month              3 Months              6 Months      1 Year       Since
                                                                                                          Inception **


High Yield Fund *                           0.35%                 1.64%                 5.08%     9.82%      10.27%


Cash                                        0.37%                 1.16%                 2.38%     4.89%      4.78%


Bonds                                      -0.05%                -0.92%                 0.78%     6.56%      7.03%


Equities                                    2.99%                 7.67%                17.15%     7.29%      0.47%




Past performance is not necessarily indicative of future performance.
Current performance figures are updated monthly and can be obtained by contacting
Challenger Customer Service on 13 35 66.
*After Performance fees, excl. Imputation Credits
** Date of Inception: 3 July 2001 since inception figures are reported on a per annum basis.
                                                                                                                         24
  Risk/Return Chart as at 31 August 2003

 16%
 14%                                          Challenger
 12%                                       High Yield Fund
 10%
  8%
  6%
  4%                                                                            Bonds
            Cash
  2%
  0%
 -2%
 -4%
 -6%
       0%          1%       1%           2%           2%     3%            3%   4%      4%

                             Since Inception Data            5 Year Data


                                                                                             25
     All return figures calculated on an annualised basis
* *All return figures calculated on an annualised basis
                High Yield Fund & Benchmark Comparisons
                (No of Issuers) – to 30 June 2003

                12%



                11%

                             High Yield
                             Fund (68)
                10%                                                   UBS Hybrid
Return % p.a.




                                                                                          UBS Hybrid
                                                                      Bond sub Index
                                                                                          Index (21)
                                                                      (16)
                9%


                                                                                                       UBS
                8%                                              UBS Core                               Composite
                         UBS Core              UBS              Credit Index                           Bond Index
                                                                (0+ years)                             (0+ years)
                         Credit Index          Composite
                7%                                              (89)                                   (100)
                         (0-5 years)           Bond Index
                         (84)                  (0-5 years)
                                               (91)
                6%
                  1.5%                  2.0%                 2.5%                      3.0%            3.5%              4.0%
                                                                                                                    26
                                                                         Risk
Chal HYF




           27
Asset Comparisons

 High probability of excess returns
 Tax Advantaged distributions
 Performance is largely uncorrelated to other asset classes –
   diversification benefits
 Better risk/return tradeoff




                                                                 28
Peer Comparisons

   Core business for Challenger
   Long track record
   Managed by large investment team (6 members)
   Managed by experienced team
   Large investment universe
   Highly diversified – Securities and Industries
   Low volatility




                                                     29
   Research Accreditation

   InvestorWeb Research Rating
    Overall Rating: Investment Grade

   InvestorWeb Research Quotes
    “Short-term performance has been outstanding …. We believe the fund could
       be used as a small part of clients fixed interest exposure to generate
       additional alpha.”
    “InvestorWeb Research believes that [the Challenger High Yield approach] is
       the most sensible approach to managing high yield portfolios.”
    “InvestorWeb believes the process employed by Challenger is well structured
        and transparent and we believe the research conducted by the team is
        comprehensive.”
    “The team is able to leverage significantly off Challenger’s highly regarded
        Australian equities team’s qualitative research and quantitative models.”
                                                                                    30
Source: InvestorWeb Research Australian Fixed Interest Sector Review October 2002
   Research Accreditation (cont)

   No manager is rated higher than Challenger in the Australian Hybrid asset
   class.


   Van Eyk
   Challenger’s people rated A, Overall rating B


   Van Eyk Quotes:
    “The manager has a well articulated philosophy to justify why it is an
        active manager of Australian high yield and hybrid securities.
        Indeed, the fund was one of the early entrants to the market”
    “Paul van Ryn has nine years experience in credit portfolio management
        and is a recognised authority on Australian High Yield and Hybrid
        Securities”
                                                                               31
Source: Van Eyk Investment Manager Profile 2003
Why use the Challenger High Yield Fund?

   Solid Income Content
   Tax Benefits
   Performance
   Core Business
   Experienced and Large Team
   Diversification of Portfolio




                                          32
APPENDIX




           33
 Investment Team – Fixed Interest
Name             Qualifications   Position              Tenure     Investment
                                                                   Experience
                                  Investment
Ian Hardy        B.Ec ASIA                              12 years   28 years
                                  Director / CIO
                 BCom (Hons)      Head of Fixed
Paul van Ryn                                            2 years    20 years
                 M.Com AASA       Interest
                 B.Juris/LLB
David Bickford                    Credit Analyst        2 years    22 years
                 M.App Finance
                                  Assistant Portfolio
Damon Shinnick   B.Com (Hons)                           2 years    4 years
                                  Manager
                                  Equity Analyst &
Ryan Wilson      B.Com                                  4 years    3 years
                                  Dealer
                 Dip. Fin Mkts
Jordan Mason                      Analyst               1 year     3 years
                 (SIA)
                 BEc MappFin
Michael Watt                      Business Analyst      2 years    10 years
                 AAIBF (Snr)

                                                                                34
 Process in Practice
Southern Cross Fliers   Transportation Infrastructure

ASX Code:               SCF

S&P Issuer Rating:      BBB-

Opportunity:            To invest in a security paying 90 Bank Bill rate + 4.0% as part of
                        the financing structure for the privatisation of Sydney Airport
Qualitative:            Challenger’s knowledge of underlying business flowed from
                        active participation in another bidding consortium.
Quantitative:           Issue 3% cheap due to time constraints in privatisation
                        process
                        Variable IPO timetable
Purchased:              June/July 2002 @ $100
                        Initial Weight 5%
Aug 2003:               Remains attractively priced despite spread contraction.
                        Yield – 8.28%
                        Margin – 2.90%                                                      35
 Process in Practice
AMCOR

ASX Code:            AMC

S&P Issuer Rating:   BBB+

Opportunity:         AMCOR 8.57% 5 year Reset Security (AMZGA)

Qualitative:         Very solid company making overseas acquisition. Financing
                     acquisition via issuing ordinary equity; reset; and debt.
Quantitative:        New issue 8% cheap relative to valuation
                     Hedge embedded equity optionality
Purchased:           May 2002

Aug 2003:            AMC market capitalisation $7.7B
                     AMZG and AMZGA Credit Rating BBB-
                     Still a solid security with attractive yield attributes
                     Yield 5.26%p.a.
                     Option Value 2.25%p.a.                                     36
 Process in Practice
Pacific Dunlop       Industrials

ASX Code:            ANN

S&P Issuer Rating:   BB+


Opportunity:         Senior Debt – 1 ½ year maturity


Qualitative:         Company being restructured
                     Limited number of buyers of security (due to Yen
                     denominated)
Quantitative:        Sold Pacific Brands subsidiary and paid down $800m of Bank
                     debt
Purchased:           Nov 2001 – Yield 16.25% (Margin 10.0%)
                     Initial Weight in Portfolio 5%
Aug 2003:            Current Margin 1.75%
                     Market capitalisation $1.2B
                     Share Price increased 50% since purchased bonds             37
 Investment Summary and Fees & Expenses
                                       Retail                               IDPS
Fund size                                 $437.6 million as at end of June 2003

Minimum investment                     $5,000                           $100,000

Entry fee                               2.0%                                None

                                    2.2% upfront,
Adviser commissions                 0.44% p.a trail               No commissions payable
                                      (GST Inc)
                           Up to 20% of the Fund’s performance (before fees & expenses) over
Performance fee
                              the UBS Warburg Composite Bond Index – All Maturities + 1%
                                      1.5% p.a                            0.80% p.a
MER
                                      (GST Inc)                           (GST Inc)
Distributions paid                    Quarterly                           Quarterly

Applications/redemptions                Daily                               Daily
                                                                                           38
Master Trusts and Wrap Availability

The fund is available on the following Master Trusts and Wrap Services:
   BT Investment Wrap                  Personal Choice MasterFund
   Questor (Bridges)                   Mentor

   Symetry                             NetWealth

   Macquarie Wrap
                                        Your Prosperity

   First Quest Retirement Service
                                        Asset Choice
                                        Avanteous
   MAX-Portfolio Management
    Service                             Beacon

 Synergy                               Navigator

 Ausmaq                                Strategy
                                        Tower Trust
 Oasis
                                                                      39
   Challenger’s Fixed Interest Biographies
Paul van Ryn – B. Com (Hons), M. Com. AASA. – Head of Fixed Interest. Paul has 20 years
Investment Industry experience. His responsibilities include fixed interest strategy, portfolio
construction, dealing, and business development.
Paul joined Challenger Portfolio Management Ltd in Feb 2001 from County (now Invesco) Investment
Management Ltd. Paul joined County from the State Electricity Commission of Victoria where he
managed the SECV’s interest rate risk and was also a director of the $1.6B SECV Superannuation
Fund.
Paul is a lecturer for the Securities Institute of Australia and tutor for the CFA program.


Ryan Wilson – B. Com. Graduate Diploma - Applied Finance. Analyst with 2 years experience.
Responsible for equity analysis, security analysis and dealing of fixed interest and hybrid securities.
Ryan joined Challenger in 1998 and initially worked in the business’s accounting area before joining the
Portfolio Management part of Challenger.


Damon Shinnick – B. Com (Hons). – Assistant Portfolio Manager with 3 years investment experience.
Responsibilities include security analysis ,quantitative analysis and assisting in the construction of
investment portfolios. Prior to joining Challenger in September 2001 Damon was a Statistical Analyst
with HSBC Asset Management responsible for statistical and quantitative analysis and research in both
fixed interest and equities markets.
Damon is studying for the CFA qualification.



                                                                                                           40
   Challenger’s Fixed Interest Biographies                                                                 (cont’d)
David Bickford - B.Juris / LLB, M. App. Finance – Credit Analyst.
As Credit Analyst David is responsible for the analysis of fixed interest investments from a credit
perspective.
David has previously worked as Head of (Fixed Interest) Trading with Citibank and also traded with his
own capital.


Ian Hardy - B.Ec. ASIA - Investment Director (CIO) with 28 years experience.
Equity strategy and economics, Equity portfolio construction, consumer staples (alcohol and tobacco,
tourism and leisure) and fixed interest/hybrid instruments.
Ian has a lengthy and varied background in investment markets having worked at senior levels for a
number of large investment groups over the past 28 years.


Jordan Mason - Dip. Financial Markets – Analyst
Jordan joined Challenger in April 2003. Jordan’s role as an additional analyst to the unit and is
responsible for data integrity in the Funds Management Analytical Tools used in the Unit and also
undertakes analysis of new investment propositions. Prior to joining Challenger, Jordan worked for
Credit Suisse First Boston assisting in the private client broking operation.


Michael Watt – B.Ec / M. App. Finance. AAIBF (Snr) - Business Analyst
Michael has 10 years experience as a business analyst working for various organisations such as
National/MLC, Merrill Lynch Asset Management, Citibank, Prudential Financial Services. At Challenger,
he is responsible for the analytical and modeling support for the equity, debt and hybrid securities and
the development of risk management systems.                                                                           41
The information contained in this presentation is general in nature
and is not intended to constitute advice or securities recommendation.
It does not take into account a particular investor’s information
requirements or needs. Past performance is not a guide to future
performance. Individuals should seek expert financial advise to
determine suitable recommendations for individual circumstances.


Offers of interests in the Challenger High Yield Fund are contained in
the relevant current Prospectus. Investors must complete the
Application Form that is attached to the Prospectus issued by
Challenger Managed Investments Ltd ABN 94 002 835 592. Investors
should consider the Prospectus carefully before deciding whether to
acquire or to continue to hold units in the Fund.


                                                                     42

								
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