Quarterly High Yield Market Summary
As of September 30, 2015 Third quarter was marked by a spike in volatility and a general risk-off trend as slower economic growth in China led to a big drop in Chinese equity markets, and has kept pressure on global commodity prices. The fragile pace of global economic growth kept the US Central Bank from reversing its record low interest rates, and Treasury rates ended the quarter down -29 bps in fives and -32 bps in tens. In high yield, Energy was down -16%, Metals/Mining -14%, Steel -12% and Chemicals – 8%. This leaves the broad market with a yield of 8%, which masks the bifurcation between commodity linked sectors yielding 9-14%, and the broader asset class yielding 7%. While the global macro picture looks increasing fragile, the U.S. economy continues to post solid indicators on balance. However, as the Fed jawbones for at least a 25 bps hike in 2015, the market is no longer taking them at their word. shed another $3.4 billion, bringing the combined outflow to -$8.4 billion. Strong CLO demand continues to limit the impact of outflows on the loan asset class.
Market Overview The Broad High Yield Indexi returned -4.90% in Q3 2015 with 162 bps of spread widening, while the Higher Quality sub-indexii returned -4.26% with 142 bps of widening. Quality outperformed, with BB rated (-3.16%) beating B rated (-5.66%) and CCC or worse (-8.36%). Energy was again the worst performing sector, down 16%, but Metals/Mining (-14%), Steel (-12%), Forestry (-9%) and Chemicals (-8%) were all notable laggards. The Treasury yield curve flattened in Q3, with the 5 year down -29 bps and the 10 year down -32 bps. The All Loan Indexiii was down -1.35%, while the BB/B rated sub-indexiv returned 0.85%, besting high yield bonds. On a year to date basis, loans are the only US corporate asset class with a positive returnv. U.S. Investment Grade Corporatesvi were up a modest 0.39% in the 3rd quarter, while Emerging Market High Yieldvii underperformed with a loss of -5.90%. The passive high yield ETFs (JNK and HYG) each underperformed the broad index over the quarter, at -5.82% and -4.94% respectively.
High yield bond ETFs and mutual funds shed $3.9 billion over the last 13 weeks, reversing the solid pace of inflows through the first quarter, and leaving a total net inflow of only $484 million year to date. Floating rate funds and ETFs
Monegy Performance Update As expected through this period of volatility, all 3 of Monegy’s Quality, Broad and Loan strategies are outperforming their respective benchmarks on a year to date basis. The Quality High Yield Strategy has returned -0.84% versus -1.682% for the BB-B High Yield Constrained Index (84 bps of outperformance), while the Broad High Yield Strategy has returned -1.09% versus -2.50% for the U.S. High Yield Constrained Index (1.41% outperformance), and the Loan Strategy has returned 3.16%, versus 2.38% for the BB-B Loan Index (78 bps outperformance). Growth of a Unit Value ($1 million) Since Inception Return Monegy Quality HY Strategy ML BB-B Constrained
7.43% p.a. 6.50% p.a.
BAML BB-B Constrained
2015
2014
2014
2013
2013
2012
2012
2011
2010
2010
2009
2009
2008
2007
2007
2006
2006
2005
2005
2004
2003
2003
2002
2002
2001
2000
2000
$3.6 $3.4 $3.2 $3.0 $2.8 $2.6 $2.4 $2.2 $2.0 $1.8 $1.6 $1.4 $1.2 $1.0 $0.8
1999
$ million
Given the pickup in volatility, it’s no surprise that the new issue market has remained subdued, with $32 billion in U.S. high yield bonds in Q3 2015, versus $60 billion in 2014 and $74 billion in 2013. Despite the slowdown, the year to date pace for high yield bonds remains at a solid clip with $181 billion so far this year, versus $186 billion in 2014 and $209 billion in 2013. It is also important to note that the reception to issuance has varied based on timing and issuer. Some issuers have been forced to pull deals on unfavourable terms (Unisys), and others have been forced to pay higher rates than expected to complete needed financing (Frontier Communications), while other quality deals (such as Tempur-Sealy and Iron Mountain) were typically well oversubscribed and have seen their deals do well in secondary trading. Turning to U.S. loans, $63 billion was issued in Q3 2015, versus $76 billion in 2014 and $87 billion in 2013. The year to date pace of U.S. loan issuance of $182 billion is much slower than the $282 billion in 2014 and $314 billion in 2013.
Defaults remain benign, but picked up pace in the third quarter, with the Energy and Metals/Mining sectors highly represented. The BAML trailing twelve month speculative grade issuer weighted default rate for U.S. high yield bonds rose from 2.05% in June to 2.57% in September. The loan default rate fell from 0.81% to 0.77%viii.
Monegy Quality HY
Source: Monegy, BofA Merrill Lynch Notes: *Monegy® believes high yield bonds provide downside protection as, relative to asset classes such as equities, they may limit the potential loss that results from a default or decline in security market value. Monegy Quality High Yield Bond Composite performance is gross of fees from October 1, 1999 (inception) to Sept 30, 2015. ML BB-B Constrained: BofA Merrill Lynch BB-B US High Yield Constrained Index (HUC4). Past performance does not guarantee future results. This is supplemental information. Please see GIPS® compliant presentation at the end of report.
Credit Investment Specialists
As of September 30, 2015 Since Inception 10/1/1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Q2 2015
Monegy Quality HY BAML US HY BB-B Constrained
7.80% 6.90%
4.27% -3.91%
10.17% 5.43%
8.23% 1.10%
17.01% 22.89%
11.38% 9.93%
3.08% 3.39%
8.36% 9.29%
3.95% 3.19%
-15.20% -23.31%
32.34% 46.06%
12.66% 14.26%
6.53% 5.40%
12.72% 14.58%
6.27% 6.31%
1.48% 3.49%
0.58% 0.02%
Over/Under Performance
0.89%
8.18%
4.74%
7.14%
-5.88%
1.45%
-0.31%
-0.93%
0.76%
8.11%
-13.71%
-1.60%
1.14%
-1.86%
-0.04%
-2.01%
0.55%
Quality High Yield
Since Inception 7/1/2010
2011
2012
2013
2014
Q2 2015
Monegy Broad HY BAML US HY Constrained
8.27% 8.38%
6.23% 4.37%
13.41% 15.55%
7.78% 7.41%
0.96% 2.51%
0.73% -0.05%
Over/Under Performance
-0.12%
1.86%
-2.14%
0.37%
-1.55%
0.77%
Broad High Yield
Since Relaunch 1/1/12
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Q2 2015
Monegy Loan Composite S&P/LSTA BB/B Leveraged Loan Index
5.98% 5.21%
8.98% 5.22%
1.39% 2.69%
2.92% 3.01%
6.40% 8.96%
4.67% 4.90%
5.59% 5.06%
6.74% 6.91%
2.81% 1.96%
-18.68% -28.57%
48.64%
9.46%
2.40%
10.76% 8.72%
5.20% 4.96%
1.77% 1.47%
1.11% 0.85%
Over/Under Performance
0.77%
3.76%
-1.30%
-0.09%
-2.56%
-0.23%
0.53%
-0.17%
0.85%
9.89%
2.04%
0.24%
0.30%
0.26%
Loans
Source: Monegy®, BofA Merrill Lynch, S&P/LSTA. Notes: As of June 30, 2015. Loans Composite are preliminary returns. All Monegy Composites are gross of fees. This is supplemental information. Time periods of greater than one year are annualized. Monegy Quality HY is measured against the BofA ML BB‐B US High Yield Constrained Index. Monegy Broad High Yield is measured against the BofA ML US High Yield Constrained Index. Monegy Loan is measured here against the S&P/LSTA BB/B Loan Index, but is benchmarked to the S&P/LSTA BB Loan Index from January 2012 – April 2014, and the S&P/LSTA BB/B customized loan index from May 2014. Past performance is not indicative of future results. Please see GIPS® compliant presentation in the Appendix. Upside/Downside since inception.
Market Value (US$ million) Average Issuer Exposure (% ) Top 10 Issuers Average Price Average Yield to Worst Average Yield to Maturity Option Adjusted Spread (bps) Probability of Default (bps) Effective Duration Average Rating
Quality HY Strategy 1,634 0.35% 9.4% 97 6.87% 7.05% 542 96 4.26 B1
Portfolio Statistics Quality HY Broad HY Benchmark Strategy 1,085,498 84 0.12% 0.42% 14.6% 10.0% 95 96 7.00% 7.16% 7.13% 7.30% 552 561 -104 4.57 4.52 BB3 B1
Broad HY BB/B Loan Benchmark Loan Strategy Benchmark 1,263,416 71 761,723 0.09% 1.13% 0.12% 12.8% 9828.9% 8.9% 92 98 96 7.98% --8.12% 4.90% 5.58% 654 459 544 -160 -4.40 0.25* 0.25* B1 B1 B1
Source: Monegy, BofA Merrill Lynch, S&P/LSTA Note: Supplemental Information, subject to change. Calculated using bid side pricing. Probability of Default is based on Moody's KMV. As of Sept 30, 2015. Data reflects the Quality High Yield Bond Composite, the Broad High Yield Bond Composite and the Loan Composite. Quality Bench: BAML BB-B US HY Constrained Index (HUC4). Broad Bench: BAML US HY Constrained Index (HUC0). Loan Bench: S&P/LSTA BB/B Loan Index.
Quality High Yield Strategy Over our 16 year track record, Monegy’s Quality High Yield Strategy has returned 7.43% per annum (“p.a.”) (gross of fees), representing 0.93% p.a. of excess returns compared to its benchmark. This outperformance was achieved with only 65% of the broad market’s volatility and 74% of the benchmark’s volatility. In the third quarter of 2015, our Quality High Yield Strategy returned -3.57% (gross of fees), outperforming its benchmark by 69 bps. Outperformance was driven primarily by the underweight to Energy, name selection in Telecom including an underweight to Sprint Communications, the overweight and name selection in Consumer Products, and an overweight in the Food/Beverage/Tobacco space. The yield in our the Monegy Quality High Yield Bond Strategy widened out by 103 bps over the quarter to 6.87%, and option adjusted spreads widened by 122 bps to
542 bps. The strategy remains well diversified with and average issuer exposure of 0.35% and the top ten holdings representing less than 10% of market value. The underlying credit quality of the Monegy Quality High Yield Bond Strategy remains solid, with an average default probability (by issuer) below 1%. Monegy’s realized default experience since inception continues to be extremely low at 0.1% p.a. through Q3 2015, well below BAML’s average of 4.5% p.a. for the same period. Broad High Yield Strategy Monegy’s Broad High Yield Strategy is now in its 5th year and in that time has returned 7.00% (gross), besting its benchmark (0.06% p.a.) without the benefit of a full credit cycle, and with only 90% of the volatility. In the third quarter of 2015 our Broad High Yield Strategy returned -4.12%ix, outperforming its benchmark by 76 bps. Similar to performance for our Quality High Yield Bond Strategy, the key contributors to outperformance were the underweight in Energy, name selection in Telecom and positioning in Consumer Products. An additional contributor was an overweight to Homebuilders. For the Broad High Yield Bond Strategy, the yield widened out by 99 bps to 7.16%, and credit spreads widened 107 bps to 561 bps. The portfolio remains highly diversified with an average issuer exposure of 0.42%, and 10% of market value attributed to the top ten holdings. The underlying credit quality of the Broad Strategy remains solid, with an average default probability (by issuer) of just over 1%.
Credit Investment Specialists
As of September 30, 2015 High Yield Loan Strategy In the third quarter of 2015 the Monegy High Yield Loan Strategy returned -0.20% (gross), beating the BB/B benchmark by 58 bps. The yield on the High Yield Loan Strategy widened by 24 bps, with 20 bps of spread widening. The portfolio has 30% concentration in the top 10 names, given the requirement for slightly higher average trade sizes in loans. The underlying credit quality of the High Yield Loan Strategy is high, albeit with an average default probability (by issuer) of 1.6% that is slightly higher than for our bond strategies due to a generally higher position in the capital structure that justifies more risk per issuer. Q4 2015 Strategy Year to date performance for the broad high yield market is now negative -2.50%, having given back the solid gains in the first quarter. The market is highly bifurcated, with distressed issuers and commodity driven sectors at much wider levels than the bulk of the index due to a higher level of defaults priced in given the expectation for continued slack in global demand. That said, weakness was widespread across all of high yield in the 3rd quarter. Given the weakness and uncertainty in Europe and Asia, we continue to prefer U.S. corporate risk to that of Europe and Asia. With such a fragile global backdrop, we continue to believe that Treasury rates will remain low and range bound through the fourth quarter. Notwithstanding, we remain underweight the longest duration bucket of high yield issuers, which primarily reflects a view on relative credit spreads and structures rather than a view on risk-free rates. The price per barrel of WTI oil fell back below $50 for most of the 3rd quarter. Oil supply continues to outpace demand and this dynamic will limit near term oil price increases. Other commodity prices such as iron ore, coal and copper also remain under significant pressure, and these sectors have underperformed. In general, we are underweight the commodities based sectors. Our holdings are focused in names we believe exhibit lower relative cost base, and we remain cautious of issuers facing secular headwinds, or prolonged oversupply pressure, such as coal and iron ore.
heavier outflows. However, continued support from Euro monetary easing and generally low yields around the globe will keep U.S. high yield in favour on balance. We are also well attuned to the potential for a significant volume of fallen angels to move from investment grade into high yield, primarily in the Energy and Metals/Mining sectors. Our estimates suggest that our existing Quality benchmark could grow by 2 ½% to 3%, with 2 ½% from Metals/Mining and ½% Energy. With respect to the return impact from these fallen angels, history suggests that fallen angels tend to outperform the existing high yield names if they are able to remain in the higher BB high yield ratings category. This outperformance can be attributed to the higher quality business profile and financial profile that kept them in investment grade originally, as well as the technical rebalancing effect that follows if much of the selling pressure from investment grade investors has already been completed by the time the issuer enters high yield, offset by new buying by high yield investors and passive index tracking funds rebalancing on the downgrade. One caveat is that fallen angels may underperform the broader high yield market where acute credit risk continues to put downward pressure on prices, such as we’re seeing within the energy and commodity linked sectors. We continue to adhere to our rigorous investment process that highlights disciplined bottom up security selection, ongoing monitoring and the balancing of risk and return. We remain highly diversified in our portfolios with no material overexposure to individual issuers, and are avoiding the temptation to stretch for yield. We rate the majority of our holdings as adequately liquid and believe we are well positioned for expected volatility. We believe our style will continue to outperform in this market environment, where quality and liquidity are rewarded.
We expect continued volatility in high yield throughout the year, coincident with momentum in market technicals. The strong new issue calendar tied to M&A activity and refinancing will weigh on the market, as will periods of
Credit Investment Specialists
As of September 30, 2015 Monegy® Monegy’s team of experienced investment professionals has specialized in managing high yield credit portfolios for 16 years, currently with US$2.0 billion in assets under management. We provide a full suite of asset management solutions for institutional, retail and high net worth investors, including segregated accounts, pooled funds and a selection of mutual fund investments on various platforms. Our objective is to achieve attractive long-term riskadjusted returns, while providing capital protection and superior client service. We offer the following opportunities to invest in high yield: Quality High Yield Bond Strategies, geared toward a more risk-averse clientele; Broad High Yield Bond Strategies, tailored for investors with a higher risk tolerance; and
High Yield Team Lori Marchildon, CFA Lead Portfolio Manager o MA (Queen’s University) o BA Economics (University of Western Ontario) o 19 years of investment experience
Vincent Huang, CFA Associate Portfolio Manager o MBA (York University Schulich School of Business) o BA - Economics (Beijing University) o 12 years of investment experience
Daniel Brennand, CFA Senior Trader/ Credit Analyst o MA (University of Toronto) o BA Economics & Politics (U of Western Ontario) o 14 years of investment experience
Jason Anderson, CFA
High Yield Loan Strategies, aimed at investors looking to position for rising base interest rates, with higher downside protection given the senior position in the capital structure.
Senior Credit Analyst o MBA (York University Schulich School of Business) o BA Finance & Economics (U of Western Ontario) o 15 years of investment experience
Global High Yield Bond Strategy, rounds out the suite of offerings with increased exposure to non-U.S. issuers.
Rory Buchalter, CFA Senior Credit Analyst o B. Commerce (McMaster University) o 18 years of investment experience
Key Elements of Our Style
Rigorous Asset Selection Supported by Quantitative and Fundamental Credit Analysis
Risk-Adjusted Portfolio Construction and Monitoring
High Levels of Diversification
Focus on Low Volatility, Stable Long-Run Returns
Disciplined Approach to Sell Decisions
Derek Johnson, CFA Senior Credit Analyst o BA Applied Science – Engineering (U. Waterloo) o 13 years of investment experience
Bobby Missar, CFA Credit Analyst o B Comm., Ryerson University o 6 years of investment experience
Credit Investment Specialists
As of September 30, 2015 MONEGY® MONEGY QUALITY HIGH YIELD BOND COMPOSITE ANNUAL DISCLOSURE PRESENTATION
1
Strategy Assets are shown as supplemental information. Strategy assets include composite and non-composite accounts that have the same investment mandate. Non-composite accounts are excluded from the composite due to size, specific client guidelines, or other strategy limitations. ® Monegy claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this ® report in compliance with the GIPS standards. Monegy has been independently verified for the periods October 1, 1999 through March 31, 2013. A copy of the verification reports are available upon request. Verification assesses whether (1) the firm has complied with all the composite construction requirements of the GIPS standards on a firm-wide basis and (2) the firm’s policies and procedures are designed to calculate and present performance in compliance with the GIPS standards. Verification does not ensure the accuracy of any specific composite presentation. The U.S. dollar is the currency used to express performance. Returns are presented gross and net of management fees and include the reinvestment of all income. Gross returns will be reduced by investment advisory fees and other expenses that may be incurred in the management of the account. The annual composite dispersion presented is an asset-weighted standard deviation calculated for the accounts in the composite the entire year. Additional information regarding the policies for valuing portfolios, calculating performance and preparing compliant presentations are available upon request. Actual investment advisory fees incurred by clients may vary. Net of fee performance was calculated using the highest management fee of 0.90% as described in the firm’s fee schedule shown below. First $50 Million: Next $50 Million: Thereafter:
0.50% 0.45% 0.40%
®
Monegy is a member of BMO Financial Group™ Trademark of Bank of Montreal and a trade name used by the Bank of Montreal and BMO Harris N.A. in Canada and the U.S. Monegy, Inc. is a registered investment advisor with the SEC, and wholly owned subsidiary of BMO Asset Management Corp. Prior ® to June 1, 2012 Monegy, Inc. was known as HIM Monegy, Inc. Prior to 2003 the firm was known as BMO Monegy. Monegy is a registered trademark used by Monegy, Inc. Representative accounts for holdings-based portfolio statistics were selected based on proximity to the model portfolio and statistics were selected based on proximity to the model portfolio and asset size. These accounts have similar restrictions and reflect the same security weights as the model portfolio. The Monegy Quality High Yield Bond Composite contains fully discretionary highly diversified portfolios of high yield bonds focusing primarily on the BB/B segment of the U.S. market with an objective of maximizing the total return, both interest income and gains for a given risk appetite. For comparison purposes, the composite is measured against the Merrill Lynch, U.S. High Yield, BB/B Constrained Index. In presentations shown from January 1, 2004 through December 31, 2004, the Merrill Lynch, U.S. High Yield, BB/B Rated Index was presented as the benchmark for this composite. In presentations shown prior to January 1, 2004, the Bear Stearns BB/B Index was presented as the benchmark for this composite. The indices were changed to be more representative ® of the composite strategy. Effective January 1, 2005, Monegy changed its pricing sources to conform to systems used by its parent. This change resulted in a one-time gain of 0.42% in 2005. As of December 31, 2010, 9% of composite assets are comprised of one account that uses currency hedging to remove the effect of currency. The minimum account size for this composite is $5 million. The composite was created October 1, 1999. Prior to July 1, 2010, the composite was called the High Yield Bond Segregated Composite. Prior to December 31, 2011, the composite was named the Quality High Yield Bond Composite.
Credit Investment Specialists
As of September 30, 2015 The firm maintains a complete list and description of composites, which is available upon request. A significant external cash flow will be identified by the firm as a cash flow that affects performance of the account so that it is not representative of the underlying investment philosophy. Beginning September 1, 2010, when an account experiences a significant external cash flow greater than 20% of portfolio beginning assets, it is assumed that such a cash flow temporarily causes a loss of discretion, and the account will be excluded from the composite for the full month the cash flow occurred. The account will be re-included in the composite the month after the cash flow occurred. Additional information regarding the treatment of significant cash flows is available upon request. Results are based on fully discretionary accounts under management, including those accounts no longer with the firm. Settlement date valuation was used to calculate performance prior to January 1, 2004. Past performance is not indicative of future results. BondEdge provides fixed income portfolio analytics to institutional investors to manage risks and understand the performance of diversified fixed income portfolios. Prior to 2008 carve-outs were included in this composite and performance reflected total segment returns. The accounts from which carve-outs were taken did not hold a cash balance. The percentage of carve-outs for the individual years is as follows: 2007: 2%, 2006: 2%, and 2005: 11%. Purchases are funded by the client upon purchase and proceeds from sold assets are returned to the client upon the close of the sale. The BofA ML BB-B U.S. High Yield Constrained Index is a benchmark index for high yield corporate bonds which excludes lower-rated securities and caps exposure to any one issuer at 2% and is administered by Merrill Lynch. The BofA ML U.S. High Yield Constrained Index is an index which tracks the performance of below investment grade US dollar-denominated corporate bonds publicly issued in the US domestic market and caps exposure to any one issuer at 2% and is administered by Merrill Lynch. The BofA Merrill Lynch US High Yield Index tracks the performance of US dollar denominated below investment grade corporate debt publicly issued in the US domestic market. Qualifying securities must have a below investment grade rating (based on an average of Moody’s, S&P and Fitch), at least 18 months to final maturity at the time of issuance, at least one year remaining term to final maturity as of the rebalancing date, a fixed coupon schedule and a minimum amount outstanding of $100 million. In addition, qualifying securities must have risk exposure to countries that are members of the FX-G10, Western Europe or territories of the US and Western Europe. The FX-G10 includes all Euro members, the US, Japan, the UK, Canada, Australia, New Zealand, Switzerland, Norway and Sweden. Original issue zero coupon bonds, 144a securities (both with and without registration rights), and pay-in-kind securities (including toggle notes) are included in the index. Callable perpetual securities are included provided they are at least one year from the first call date. Fixed-to-floating rate securities are included provided they are callable within the fixed rate period and are at least one year from the last call prior to the date the bond transitions from a fixed to a floating rate security. Contingent capital securities (“cocos”) are excluded, but capital securities where conversion can be mandated by a regulatory authority, but which have no specified trigger, are included. Other hybrid capital securities, such as those legacy issues that potentially convert into preference shares, those with both cumulative and non-cumulative coupon deferral provisions, and those with alternative coupon satisfaction mechanisms, are also included in the index. Securities issued or marketed primarily to retail investors, equity-linked securities, securities in legal default, hybrid securitized corporates, eurodollar bonds (USD securities not issued in the US domestic market), taxable and tax-exempt US municipal securities and DRD-eligible securities are excluded from the index. Investments cannot be made in an index. The above strategy characteristics are for a representative account and shown for illustrative purposes only. Each account is managed individually. Accordingly, account characteristics may vary. Portfolio composition is subject to change. Past performance does not guarantee future results.
MONEGY® MONEGY BROAD HIGH YIELD BOND COMPOSITE ANNUAL DISCLOSURE PRESENTATION
1
Results shown for the year 2010 represent partial period performance from July 1, 2010 through December 31, 2010.
Credit Investment Specialists
As of September 30, 2015 2
Strategy Assets are shown as supplemental information. Strategy assets include composite and non-composite accounts that have the same investment mandate. Non-composite accounts are excluded from the composite due to size, specific client guidelines, or other strategy limitations. The Monegy Broad High Yield Bond Composite contains fully discretionary highly diversified portfolios of high yield bonds focusing primarily on the U.S. market with an objective of maximizing the total return, both interest income and gains for a given risk appetite. For comparison purposes, the composite is measured against the Merrill Lynch, U.S. High Yield, Master II Constrained Index. The minimum account size for this composite is $20 million. The composite was created July 1, 2010. Prior to December 31, 2011, the composite was named the Broad High Yield Composite. The BofA Merrill Lynch US High Yield Constrained Index contains all securities in The BofA Merrill Lynch US High Yield Index but caps issuer exposure at 2%.. Investments cannot be made in an index. The above strategy characteristics are for a representative account and shown for illustrative purposes only. Each account is managed individually. Accordingly, account characteristics may vary. Portfolio composition is subject to change. Past performance does not guarantee future results.
MONEGY® MONEGY HIGH YIELD LOAN COMPOSITE ANNUAL DISCLOSURE PRESENTATION
1
Benchmark from 01/01/2012 forward is S&P/LSTA BB Loan Index. Prior to January 1, 2012 the benchmark was the S&P BB Leverage Loan Index. Prior to January 1, 2005, the benchmark was the BAS High Yield Loan Index. 2 Strategy Assets are shown as supplemental information. Strategy assets include composite and non-composite accounts that have the same investment mandate. Non-composite accounts are excluded from the composite due to size, specific client guidelines, or other strategy limitations. The Monegy High Yield Loan Composite contains fully discretionary portfolios of leveraged loans, focusing primarily on noninvestment grade rated companies in the U.S. market with an objective of maximizing the total return, both interest income and gains for a given risk appetite. Currency Forwards or Swaps may be used for hedging purposes. For comparison purposes, the composite will be benchmarked to the S&P/LSTA BB Loan Index. Prior to January 1, 2012 the composite was measured against the S&P BB Leverage Loan Index. Prior to January 1, 2005, the benchmark was the BAS High Yield Loan Index. The indices were changed to be more representative of the composite strategy. The minimum account size for this composite is $5 million. The Composite was created January 1, 2000 and had performance until December 31, 2008 when the composite was closed due to no more client accounts investing in the strategy. The composite was re-opened January 1, 2012. Prior to January 1, 2012 the composite had been called the High Yield Loan Segregated Composite. S&P/LSTA BB Loan Index is an index of floating rate term loans rated BB by S&P. BAS High Yield Loan Index is an index of floating rate term loans. Investments cannot be made in an index. The above strategy characteristics are for a representative account and shown for illustrative purposes only. Each account is managed individually. Accordingly, account characteristics may vary. Portfolio composition is subject to change. Past performance does not guarantee future results.
ADDITIONAL DISCLOSURES eVestment Alliance (eA) is an investment manager database. The rankings and statistics presented were created using the information collected through the eA’s manager questionnaire and uses only gross of fee returns. Performance used to calculate the percentile rankings did not take into account the deduction of investment advisory fees and a client’s return will be reduced by advisory fees and other expenses it may incur in the management of its account. Because of the possibility of human or mechanical
Credit Investment Specialists
As of September 30, 2015 error by eA sources or others, eA nor Monegy guarantee the accuracy, adequacy, completeness, or availability of any information and are not responsible for any error or omissions or the results obtained from the use of such information. eA Multi-Statistic Quartile Ranking Bar – The Multiple Statistics Quartile Ranking graph is used to rank various performance and statistics of eA managers, market indexes or your own self-entered products against a universe. The range of returns or other modern portfolio characteristics in the universe are represented by floating bars. Each bar is broken up into 4 quartiles. The upper quartile represents the top 25% of the managers in the particular universe for the particular time period (you can choose up to eight time periods). The managers, indexes and portfolios are plotted relative to the floating bars. Growth of a Unit Value Chart – The U.S. Dollar is the currency used to express performance. Returns are based on monthly composite returns linked on a rolling basis and include the reinvestment of all income. Return does not take into account any fees, expenses, taxation or inflation. A list of all holdings from the last 12 months are available upon written request. Downside Protection - We believe that high yield bonds provide downside protection as, relative to riskier asset classes such as equities, they may limit the potential loss that results from a default or decline in security market value. Past performance is not indicative of future results. Indexes have no identifiable objectives, are not managed funds and cannot be purchased. They do not provide an indicator of how individual investments performed in the past or how they will perform in the future. Performance of indexes does not reflect the deduction of any fees and charges, and past performance of indexes does not guarantee future performance of any investment. Index Definitions: BofA Merrill Lynch US High Yield Index (H0A0) An index which tracks the performance of below investment grade US dollardenominated corporate bonds publicly issued in the US domestic market. BofA Merrill Lynch US High Yield Constrained Index (HUC0) is identical to the H0A0 other than it caps exposure to any one issuer at 2%. BofA Merrill Lynch BB-B US High Yield Constrained Index (HUC4) A subset of the BofA Merrill Lynch US High Index that excludes bonds rated less than B-/B3 and caps exposure to any one issuer at 2%. Note: for 2012, BofA Merrill Lynch has changed the country inclusion rules of several of its US and Global indices, essentially reducing emerging market issuers and adding 2 European countries. Please refer to BofA Merrill Lynch for index rules. S&P/LSTA All Loan Index: An index tracking all high yield term loans in the S&P/LSTA Universe. S&P/LSTA BB Loan Index: A subset of the All Loan Index that tracks higher quality term loans rated BB. About BMO Financial Group Bank of Montreal uses a unified branding approach that links all of the organization’s member companies. Bank of Montreal, together with its subsidiaries, is known as BMO Financial Group™. BMO Financial Group is a Trademark of Bank of Montreal and a trade name used by the Bank of Montreal and Harris N.A. in Canada and the US. Subject to change. BMO Global Asset Management is the brand name for various affiliated entities of BMO Financial Group that provide investment management, retirement, and trust and custody services. Certain of the products and services offered under the brand name BMO Global Asset Management are designed specifically for various categories of investors in a number of different countries and regions and may not be available to all investors. Products and services are only offered to such investors in those countries and regions in accordance with applicable laws and regulations. BMO Financial Group is a service mark of Bank of Montreal (BMO). BMO Asset Management Corp., BMO Investment Distributors, LLC, BMO Private Bank, BMO Harris Bank N.A. and BMO Harris Financial Advisors, Inc. are affiliated companies. BMO Private Bank is a brand name used in the United States by BMO Harris Bank N.A. Investment products are: NOT FDIC INSURED — NOT BANK GUARANTEED — MAY LOSE VALUE. © 2015 BMO Financial Corp. The opinions expressed here reflect our judgment at this date and are subject to change. Information has been obtained from sources we consider to be reliable, but we cannot guarantee the accuracy. This publication is prepared for general information only. The material does not constitute investment advice and is not intended as an endorsement of any specific investment. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person who may receive this report. Investors should seek advice regarding the appropriateness of investing in any securities or investment strategies discussed or realized. Investment involves risk. Market conditions and trends will fluctuate. The value of an investment as well as income associated with investments may rise or fall. Accordingly, investors may receive back less than originally invested. Investments cannot be made in an index. Past performance is not necessarily a guide to future performance.
i BofA ML US High Yield Index (H0A0) ii BofA ML BB-B US High Yield Constrained Index (HUC4) iii S&P/LSTA All Loan Index iv S&P/LSTA BB/B custom Loan Index v Of S&P 500, ML US Corporate Index (C0A0), BAML US High Yield Index (H0A0) vi BofA ML US Corporate Index (C0A0) vii BofA ML High Yield Emerging Corporate Plus Index (EMHB) viii S&P/LSTA lagging 12 month default rate by issuer ix All Monegy returns gross of fees
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