AGF Floating Rate Income Fund
AGF Floating Rate Income Fund Scott Page, CFA Co-Director of Eaton Vance Floating-Rate Loan Group
Scott Page, MBA, CFA Co-Director of Floating-Rate Loans, Eaton Vance
• 32-year industry veteran • Portfolio Manager on AGF Floating Rate Income Fund since inception • Eaton Vance Management launched the first ever U.S. floating-rate loan in 1989
62
Agenda • Floating-Rate Loan Primer • Floating-Rate Loan Market Update • Why Floating-Rate Loans now? • Why Select AGF Floating Rate Income Fund • AGF Floating Rate Income Fund Review
63
Floating-Rate Loan Primer
64
Floating-Rate Loan Primer •
Corporate debt issued by below-investment-grade borrowers
•
Most issuers are significant in size and scale – and many are familiar household names
•
Companies undertake loans for recapitalizations, acquisitions and refinancings
•
Coupon income from floating-rate loans resets regularly (about every 40-60 days on average) to maintain a fixed spread over a variable base rate, usually LIBOR
•
Loans are often referred to as “senior and secured.” They typically have the highest priority of claims in an issuer’s capital structure and are secured by specific collateral
•
Other common monikers: bank loans, leveraged loans, senior loans (all are synonymous)
Data provided is for informational use only. Past performance is no guarantee of future results. It is not possible to invest directly in an Index. See end of report for important additional information.
65
Investment Universe Profile Senior secured lending to significant corporate issuers •
•
•
Floating-rate loans represent a well-protected senior layer of issuer capital structure Significant junior capital cushion (i.e. equity and highyield bonds) provides attractive loan-to-value Secured by collateral including issuer accounts receivable, inventory, property, plant, equipment and/or stock
Weighted Average Company Capital Structure: $5.2B Revenue & $828M EBITDA $9.4 Billion Enterprise Value
Floating-Rate Loans
$3,146 Million US$2 B
3.9x (33% of cap structure)
High-Yield Bonds
$1,490 Million
5.6x (16% of cap structure)
$4,764 Million
11.3x (51% of cap structure)
Equity
Fixed Charge Coverage: 2.1x Interest Coverage: 3.9x
Source: Eaton Vance, 12/31/2014. For illustrative purposes only. Not meant to represent any Eaton Vance Funds. It is not possible to invest directly in an index.
66
Floating-Rate Loan Market Update
67
Q4 Supply Growth Eased on Higher Market Yields Supply expansion about half the speed QoQ Par amount of Outstanding Loans ($B) $832
3 months $27
$800B
$682
$700B $600B $500B $400B $300B $200B $100B $0B '96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
68
Source: S&P/LCD and S&P/LSTA Leveraged Loan Index, December 31, 2014.
CLOs Accounting for Majority of Visible Demand Visible Inflows
•
Retail still in reverse (but moderating in early January); Institutional mandates additive 69
Source: S&P/LCD, December 31, 2014.
Borrowing Proposition Remains in Check Debt & Enterprise Values as EBITDA Multiples
Avg. Interest Coverage Ratio of Outstanding Loans
Total Enterprise Values here
Lending here
•
“Outer edge” multiples contained; generationally low interest costs a mitigating factor 70
Source: S&P/LCD.
Default Rates Well Below Long-Term Averages Sound fundamentals have helped limit default scenarios Lagging 12-Month Default Rate by Principal Amount $70B
12%
Amount to Default
$60B
Default Rate
Actual Default Rate
10%
$50B 8%
Amount Recovered On Default (Assumes 70% Recoveries)
$40B 6% $30B 4% $20B
Credit Loss Given Default (Assumes 70% Recoveries)
2%
$10B
$0B
0% '00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
71
Source: S&P/LCD and S&P/LSTA Leveraged Loan Index.
Loan Prices have Recently Rebounded after Soft Technicals in Q4-2014 Average Prices $100
$98
$97.0
$96
$94
$92
$90 Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
72
Source: S&P/LCD and S&P/LSTA Leveraged Loan Index.
Spreads Reasonable – Remain well wide of prior-era lows Nominal Spread of Outstanding Loans 500
450
443 400
350
300
250
200 '03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
73
Source: S&P/LCD and S&P/LSTA Leveraged Loan Index.
Spreads Remain Well Wide of 2006/2007 Levels Spread to Maturity of Outstanding Loans 2,000
bps
1,500
1,000
500
0 '04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
Source: S&P/LCD and S&P/LSTA Leveraged Loan Index. Data provided is for informational use only. Past performance is no guarantee of future results. It is not possible to invest directly in an Index. See end of report for important additional information. Default rate is calculated as the amount default over the last twelve months divided by the amount outstanding at the beginning of the twelve-month period.
74
Why Floating-Rate Loans Now
75
High Yield per Unit of Duration May help amplify yield today, while significantly shortening portfolio duration Floating-Rate Loans vs. Select Asset Classes
76
Source: Morningstar, December 31, 2014.
Positive Return Tendencies for 20 Years •
1%-2% per quarter most common historically; skew has helped drive tendencies positive Distribution of All Quarterly Total Returns: 1992-Q3-2014 Negative Quarters
Positive Quarters Returns have been positive in 87% of quarters since 1992.
Q1 2008 Q3 2008 Q4 2008
77
Source: Zephyr, December 31, 2014.
Negative Correlation a Hedge for High-Quality Bonds 10-Year Correlation with U.S. Treasuries
•
“Anti-bond” characteristics: may help offset core bond positions driven by interest rates
Source: Morningstar, December 31, 2014.
78
Easy Monetary Conditions May Persist… …but when tightening ultimately comes, loans should benefit Cumulative Loan Performance During Prior Rising Rate Environments 6/99-5/00
6/04-6/06
Loans: 3.93%
Loans: 12.66%
Bonds: 2.11%
Bonds: 6.55%
2/94–2/95 Loans: 10.39% Bonds: 0.01%
79
Source: Morningstar, December 31, 2014.
The Future: Will Rates Rise, Stay Level, Fall? •
Looking ahead, most interest-rate scenarios favour loans (thanks to generationally low rates) Loans vs. Bonds: Hypothetical Returns in Various Rate Scenarios
Interest-Rate changes (in basis points)
Source: Eaton Vance, December 31, 2014.
80
Thinking about Baseline Forward Returns Fed guidance is for higher short-term rates Weighted Average Absolute All-In Rate 15%
3-Month LIBOR
Spread
10%
Fed Rate Hike Cycle: 6/04-6/06 (17 hikes totaling 425 bps)
5%
What’s Next for Short Rates?
0%
81
Source: S&P/LCD, March 31, 2015.
Why AGF Floating Rate Income Fund
82
Advantage of Eaton Vance’s Experience A pioneer in floating-rate loan investment management Years Experience Managing Floating-Rate Loans • Measurable track record since 1989
0
5
10
15
• Significant floating-rate loan investment resources and specialization
20
25 Eaton Vance (Since 1989)
• Extensive contiguous experience of investment team • Focus on delivering incremental outperformance with lower volatility than the Index and peers
Median 8.9 Years
• Continuity of philosophy, process and team over time • Systematic risk-weighted portfolio construction underpinned by bottom-up credit research Eaton Vance (1989)
Competitor Floating-Rate Loan Managers (Institutional & Retail)
eVestment Alliance/Morningstar, 12/31/2014. Based on combined eVestment Alliance Floating-Rate Bank Loan Fixed Income universe and Morningstar Bank Loan category using oldest investment offering for each firm.
83
Floating-Rate Loan Strategy Assets Vehicles and assets managed* Floating-Rate Loan AUM: $40.8 b (by vehicle)
Floating-Rate Loan AUM: $40.8 b (by calendar year) $50
Institutional ($9,867 m)
$45
$40.8b
$40
Structured Products ($2,497 m)
$35 $30 $25
Closed End Funds and Sleeves ($4,026 m)
$20 $15 $10
Sub-Advised ($2,813 m)
$5 $0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Mutual Funds ($21,611 m)
Eaton Vance Management (and affiliates) as of 12/31/2014 *The above AUM data includes those vehicles sponsored by Eaton Vance which generally only have a portion of their total investments allocated to the Floating-Rate sector.
84
Extensive and Experienced Investment Team Team Leadership Scott Page, CFA
Craig Russ
John Redding
Andrew Sveen, CFA
Ralph Hinckley, CFA Broadcast/Cable TV, Telecom, Publishing 17 Years Experience (11 with Eaton Vance)
Catherine McDermott Auto, Gaming, Packaging 26 Years Experience (14 with Eaton Vance)
Peter Campo, CFA Building Products, Insurance, Oil & Gas 19 Years Experience (11 with Eaton Vance)
Michael Turgel, CFA Food, Metals, Utilities 12 Years Experience (8 with Eaton Vance)
Jeff Hesselbein, CFA Healthcare, Pharmaceuticals, Theme Parks 18 Years Experience (15 with Eaton Vance)
Heath Christensen, CFA Aerospace/Defense, Software, Travel 11 Years Experience (11 with Eaton Vance)
Daniel McElaney, CFA Business Equip/Services, Chemicals/Plastics, Consumer Products 11 Years Experience (10 with Eaton Vance)
Cyril Legrand 4 Years Experience (4 with Eaton Vance)
Brian Keenan Business Equip/Services, Healthcare, Telecom 5 Years Experience (5 with Eaton Vance)
William Holt, CFA Casinos, Financials, Restaurants, Technology, Semiconductors 13 Years Experience (10 with Eaton Vance)
Elizabeth Chou Retailers (excl Food & Drug) 5 Years Experience (5 with Eaton Vance)
Samuel Tripp 1 Year Experience (1with Eaton Vance
33 Years Experience (25 with Eaton Vance)
29 Years Experience (18 with Eaton Vance)
30 Years Experience (17 with Eaton Vance)
20 Years Experience (16 with Eaton Vance)
Credit Research
Brad Richards 3 Years Experience (3 with Eaton Vance)
Audrey S. Grant 1 Year Experience (1with Eaton Vance)
85
Extensive and Experienced Capabilities Trading
Recovery Management / Credit Advisory
Andrew Sveen, CFA 20 Years Experience (16 with Eaton Vance)
Jake Lemle 7 Years Experience (7 with Eaton Vance)
David Aloise 40 Years Experience (15 with Eaton Vance)
Structured Products
Operations & Compliance
Product & Portfolio Strategy
Michael Kinahan, CFA 28 Years Experience (17 with Eaton Vance)
Michael Botthof 23 Years Experience (17 with Eaton Vance)
Christopher Remington 16 Years Experience (6 with Eaton Vance)
Additional Staff: 2 structured product professionals
Additional Staff: 7 operations/compliance professionals
David McKown 57 Years Experience (15 with Eaton Vance)
Howard Tiffen 43 Years Experience (2 with Eaton Vance)
86
Investment Process Investable Universe
Select Universe
Target Portfolio
1500 Loans Qualitative Analysis
Quantitative Analysis
1000 Loans Structural Analysis
– Investment team identifies most appropriate opportunity set
Relative Value Analysis
450-550 Loans – Systematic risk-weighted construction driven by relative risk rankings
– Focus on diversification – Select universe analyzed through – S&P/LSTA Leveraged Loan Index & select – Position sizing optimized for optimal fundamental credit research process non-U.S. loans risk/return profile – Time-tested bottom-up credit research – Apply criteria (examples): – Relative risk rankings assigned by analysts • Minimum deal size • Maximum leverage Source: Eaton Vance. Illustrative purposes only. Not meant to represent any Eaton Vance Funds. • Qualitative assessments
87
AGF Floating Rate Income Fund Review
88
AGF Floating Rate Income Fund – Portfolio Statistics Asset Distribution Bank Loans Corporate Bonds Equity Net Cash & Equivalents Total
84.3% 12.6% 0.1% 3.0% 100.0%
Portfolio Statistics (Loan Portfolio) Total Net Assets: Number of Loans: Average loan size: Average loan size of TNA: Total loans (mkt value): Weighted average price (loans) Weighted average years to maturity Weighted average days to reset Loan duration Weighted average spread Weighted average LIBOR Weighted average all-in rate YTM
$284.9mm 322 $0.746mm 0.26% $240.2mm 97.75% 4.87 62 0.16986 3.76% 1.00% 4.76% 5.34%
Portfolio Statistics (Bond Portfolio) Number of Bonds: Total bonds (mkt value): Weighted average price (bonds) Weighted average years to maturity Bond duration Weighted average g coupon YTM YTW
73 $35.7mm 101.63% 5.81 3.18 7.32% 6.78% 6.03%
Assets by Country U.S. Australia Bermuda Canada Cayman Islands France Germany Luxembourg Netherlands Total Foreign Total
87.92% 0.93% 0.23% 3.47% 0.32% 0.63% 0.86% 3.14% 2.50% 12.08% 100.00%
Other Asset Distributions Covenant Lite 2nd Lien Bank Loans Portfolio Credit Quality Baa Ba B Caa Ca Total Weighted Average Credit Rating
Top Ten Industries Business Equipment & Services Health Care Electronics/Electrical Oil & Gas Chemicals & Plastics Retailers (except food & drug) Financial Intermediaries Insurance Industrial Equipment Food Service Total
9.58% 9.52% 8.06% 6.86% 6.74% 5.91% 4.71% 3.43% 3.40% 3.36% 61.56%
Portfolio Stats (Total Portfolio) Fund duration Fund weighted average years to maturity Net Yield
0.55 4.83 3.59%
Top Ten Holdings Transdigm, Inc. Asurion LLC Ineos US Finance LLC Syniverse Holdings, Inc. Dell Inc. 1011778 B.C. Unlimited Liability Company Guggenheim Partners, LLC AmWINS Group, LLC Apex Tool Group, LLC Kronos Incorporated Total
65.16% 4.45% % of MV 0.7% 33.0% 59.0% 5.5% 0.1% 100.0% B1
1.64% 1.42% 1.25% 1.14% 1.09% 1.03% 0.86% 0.82% 0.82% 0.82% 10.90%
89
Source: Eaton Vance, March 31, 2015.
AGF Floating Rate Income Fund – Performance Calendar Return, USD As of March 31, 2015
2014
2013
AGF Floating Rate Income Fund (Gross)
2.5%
5.9%
AGF Floating Rate Income Fund (Net)
0.6%
3.9%
S&P/LSTA Leveraged Loan Index (USD)
1.6%
5.3%
Annualized Return USD As of March 31, 2015
3 mo.
1-yr
PSD*
AGF Floating Rate Income Fund (Gross)
2.2%
3.1%
5.1%
AGF Floating Rate Income Fund (Net)
1.8%
1.2%
3.1%
S&P/LSTA Leveraged Loan Index (USD)
2.1%
2.5%
4.8%
Source: AGF Investment Operations, as of March 31, 2015. USD. *Performance Start Date of May 1, 2012.
90
Why AGF Floating Rate Income Fund, Why Now • • • • •
Eaton Vance is the largest floating-rate manager in North America with experience in this asset class dating back to 1989, substantially longer than any competing product in Canada. Floating-rate loans typically perform well in rising interest rate environments because of their short duration. Floating-rate loans have low to negative correlations with other typical fixedincome and equity asset classes Senior and secured: floating-rate loans have the highest priority in a company’s capital structure and are generally backed by hard assets in the form of collateral Short term: loans have an average life of three years and their coupons reset approximately every 55 days, resulting in little to no duration risk associated with these securities.
91
Available Marketing Support For you and your clients
92
Disclaimers Eaton Vance Management (Boston, Massachusetts), Portfolio Manager of AGF Floating Rate Income Fund, is an International Adviser relying on an exemption from Canadian registration requirements under National Instrument 31-103. All information is in Canadian dollars. The indicated rates of return are the historical annual compounded total return including changes in unit value and reinvestment of all dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The payment of distributions should not be confused with a fund’s performance, rate of return or yield. If distributions paid by the fund are greater than the performance of the fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a fund, and income and dividends earned by a fund are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base falls below zero, you will have to pay capital gains tax on the amount below zero. Past performance is not necessarily a guide to future performance. The value of investments and the income from them can fall as well as rise. Investments denominated in foreign currencies are subject to fluctuations in exchange rates, which may have an adverse affect on the value of the investments, sale proceeds, and on dividend or interest income. Investors may not necessarily recoup the full value of their original investment. Investors should be aware that forward looking statements and forecasts may not be realised. The commentaries contained herein are provided as a general source of information based on information available as of March 31, 2015 and should not be considered as personal investment advice or an offer or solicitation to buy and / or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however accuracy cannot be guaranteed. Market conditions may change and the manager accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained herein. 1 of 2 93
DISCLAIMER CONTINUED ON FOLLOWING PAGE
Disclaimers References to specific securities are presented to illustrate the application of our investment philosophy only and are not to be considered recommendations by AGF Investments Inc. or Eaton Vance. The specific securities identified and described in this presentation do not represent all of the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were or will be profitable. The information contained herein was provided by AGF Investment Operations and intends to provide you with information related to the AGF Floating Rate Income Fund at a point in time. It is not intended to be investment advice applicable to any specific circumstance and should not be construed as investment advice. Market conditions may change impacting the composition of a portfolio. AGF Investments Inc. and Eaton Vance Management assume no responsibility for any investment decisions made based on the information provided herein. Publication date: April 20, 2015 2 of 2
94
Scott Page, MBA, CFA Co-Director of Floating-Rate Loans, Eaton Vance
• 32-year industry veteran • Portfolio Manager on AGF Floating Rate Income Fund since inception • Eaton Vance Management launched the first ever U.S. floating-rate loan in 1989
62
Agenda • Floating-Rate Loan Primer • Floating-Rate Loan Market Update • Why Floating-Rate Loans now? • Why Select AGF Floating Rate Income Fund • AGF Floating Rate Income Fund Review
63
Floating-Rate Loan Primer
64
Floating-Rate Loan Primer •
Corporate debt issued by below-investment-grade borrowers
•
Most issuers are significant in size and scale – and many are familiar household names
•
Companies undertake loans for recapitalizations, acquisitions and refinancings
•
Coupon income from floating-rate loans resets regularly (about every 40-60 days on average) to maintain a fixed spread over a variable base rate, usually LIBOR
•
Loans are often referred to as “senior and secured.” They typically have the highest priority of claims in an issuer’s capital structure and are secured by specific collateral
•
Other common monikers: bank loans, leveraged loans, senior loans (all are synonymous)
Data provided is for informational use only. Past performance is no guarantee of future results. It is not possible to invest directly in an Index. See end of report for important additional information.
65
Investment Universe Profile Senior secured lending to significant corporate issuers •
•
•
Floating-rate loans represent a well-protected senior layer of issuer capital structure Significant junior capital cushion (i.e. equity and highyield bonds) provides attractive loan-to-value Secured by collateral including issuer accounts receivable, inventory, property, plant, equipment and/or stock
Weighted Average Company Capital Structure: $5.2B Revenue & $828M EBITDA $9.4 Billion Enterprise Value
Floating-Rate Loans
$3,146 Million US$2 B
3.9x (33% of cap structure)
High-Yield Bonds
$1,490 Million
5.6x (16% of cap structure)
$4,764 Million
11.3x (51% of cap structure)
Equity
Fixed Charge Coverage: 2.1x Interest Coverage: 3.9x
Source: Eaton Vance, 12/31/2014. For illustrative purposes only. Not meant to represent any Eaton Vance Funds. It is not possible to invest directly in an index.
66
Floating-Rate Loan Market Update
67
Q4 Supply Growth Eased on Higher Market Yields Supply expansion about half the speed QoQ Par amount of Outstanding Loans ($B) $832
3 months $27
$800B
$682
$700B $600B $500B $400B $300B $200B $100B $0B '96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
68
Source: S&P/LCD and S&P/LSTA Leveraged Loan Index, December 31, 2014.
CLOs Accounting for Majority of Visible Demand Visible Inflows
•
Retail still in reverse (but moderating in early January); Institutional mandates additive 69
Source: S&P/LCD, December 31, 2014.
Borrowing Proposition Remains in Check Debt & Enterprise Values as EBITDA Multiples
Avg. Interest Coverage Ratio of Outstanding Loans
Total Enterprise Values here
Lending here
•
“Outer edge” multiples contained; generationally low interest costs a mitigating factor 70
Source: S&P/LCD.
Default Rates Well Below Long-Term Averages Sound fundamentals have helped limit default scenarios Lagging 12-Month Default Rate by Principal Amount $70B
12%
Amount to Default
$60B
Default Rate
Actual Default Rate
10%
$50B 8%
Amount Recovered On Default (Assumes 70% Recoveries)
$40B 6% $30B 4% $20B
Credit Loss Given Default (Assumes 70% Recoveries)
2%
$10B
$0B
0% '00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
71
Source: S&P/LCD and S&P/LSTA Leveraged Loan Index.
Loan Prices have Recently Rebounded after Soft Technicals in Q4-2014 Average Prices $100
$98
$97.0
$96
$94
$92
$90 Jan-14
Feb-14
Mar-14
Apr-14
May-14
Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Dec-14
Jan-15
Feb-15
72
Source: S&P/LCD and S&P/LSTA Leveraged Loan Index.
Spreads Reasonable – Remain well wide of prior-era lows Nominal Spread of Outstanding Loans 500
450
443 400
350
300
250
200 '03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
73
Source: S&P/LCD and S&P/LSTA Leveraged Loan Index.
Spreads Remain Well Wide of 2006/2007 Levels Spread to Maturity of Outstanding Loans 2,000
bps
1,500
1,000
500
0 '04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
Source: S&P/LCD and S&P/LSTA Leveraged Loan Index. Data provided is for informational use only. Past performance is no guarantee of future results. It is not possible to invest directly in an Index. See end of report for important additional information. Default rate is calculated as the amount default over the last twelve months divided by the amount outstanding at the beginning of the twelve-month period.
74
Why Floating-Rate Loans Now
75
High Yield per Unit of Duration May help amplify yield today, while significantly shortening portfolio duration Floating-Rate Loans vs. Select Asset Classes
76
Source: Morningstar, December 31, 2014.
Positive Return Tendencies for 20 Years •
1%-2% per quarter most common historically; skew has helped drive tendencies positive Distribution of All Quarterly Total Returns: 1992-Q3-2014 Negative Quarters
Positive Quarters Returns have been positive in 87% of quarters since 1992.
Q1 2008 Q3 2008 Q4 2008
77
Source: Zephyr, December 31, 2014.
Negative Correlation a Hedge for High-Quality Bonds 10-Year Correlation with U.S. Treasuries
•
“Anti-bond” characteristics: may help offset core bond positions driven by interest rates
Source: Morningstar, December 31, 2014.
78
Easy Monetary Conditions May Persist… …but when tightening ultimately comes, loans should benefit Cumulative Loan Performance During Prior Rising Rate Environments 6/99-5/00
6/04-6/06
Loans: 3.93%
Loans: 12.66%
Bonds: 2.11%
Bonds: 6.55%
2/94–2/95 Loans: 10.39% Bonds: 0.01%
79
Source: Morningstar, December 31, 2014.
The Future: Will Rates Rise, Stay Level, Fall? •
Looking ahead, most interest-rate scenarios favour loans (thanks to generationally low rates) Loans vs. Bonds: Hypothetical Returns in Various Rate Scenarios
Interest-Rate changes (in basis points)
Source: Eaton Vance, December 31, 2014.
80
Thinking about Baseline Forward Returns Fed guidance is for higher short-term rates Weighted Average Absolute All-In Rate 15%
3-Month LIBOR
Spread
10%
Fed Rate Hike Cycle: 6/04-6/06 (17 hikes totaling 425 bps)
5%
What’s Next for Short Rates?
0%
81
Source: S&P/LCD, March 31, 2015.
Why AGF Floating Rate Income Fund
82
Advantage of Eaton Vance’s Experience A pioneer in floating-rate loan investment management Years Experience Managing Floating-Rate Loans • Measurable track record since 1989
0
5
10
15
• Significant floating-rate loan investment resources and specialization
20
25 Eaton Vance (Since 1989)
• Extensive contiguous experience of investment team • Focus on delivering incremental outperformance with lower volatility than the Index and peers
Median 8.9 Years
• Continuity of philosophy, process and team over time • Systematic risk-weighted portfolio construction underpinned by bottom-up credit research Eaton Vance (1989)
Competitor Floating-Rate Loan Managers (Institutional & Retail)
eVestment Alliance/Morningstar, 12/31/2014. Based on combined eVestment Alliance Floating-Rate Bank Loan Fixed Income universe and Morningstar Bank Loan category using oldest investment offering for each firm.
83
Floating-Rate Loan Strategy Assets Vehicles and assets managed* Floating-Rate Loan AUM: $40.8 b (by vehicle)
Floating-Rate Loan AUM: $40.8 b (by calendar year) $50
Institutional ($9,867 m)
$45
$40.8b
$40
Structured Products ($2,497 m)
$35 $30 $25
Closed End Funds and Sleeves ($4,026 m)
$20 $15 $10
Sub-Advised ($2,813 m)
$5 $0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Mutual Funds ($21,611 m)
Eaton Vance Management (and affiliates) as of 12/31/2014 *The above AUM data includes those vehicles sponsored by Eaton Vance which generally only have a portion of their total investments allocated to the Floating-Rate sector.
84
Extensive and Experienced Investment Team Team Leadership Scott Page, CFA
Craig Russ
John Redding
Andrew Sveen, CFA
Ralph Hinckley, CFA Broadcast/Cable TV, Telecom, Publishing 17 Years Experience (11 with Eaton Vance)
Catherine McDermott Auto, Gaming, Packaging 26 Years Experience (14 with Eaton Vance)
Peter Campo, CFA Building Products, Insurance, Oil & Gas 19 Years Experience (11 with Eaton Vance)
Michael Turgel, CFA Food, Metals, Utilities 12 Years Experience (8 with Eaton Vance)
Jeff Hesselbein, CFA Healthcare, Pharmaceuticals, Theme Parks 18 Years Experience (15 with Eaton Vance)
Heath Christensen, CFA Aerospace/Defense, Software, Travel 11 Years Experience (11 with Eaton Vance)
Daniel McElaney, CFA Business Equip/Services, Chemicals/Plastics, Consumer Products 11 Years Experience (10 with Eaton Vance)
Cyril Legrand 4 Years Experience (4 with Eaton Vance)
Brian Keenan Business Equip/Services, Healthcare, Telecom 5 Years Experience (5 with Eaton Vance)
William Holt, CFA Casinos, Financials, Restaurants, Technology, Semiconductors 13 Years Experience (10 with Eaton Vance)
Elizabeth Chou Retailers (excl Food & Drug) 5 Years Experience (5 with Eaton Vance)
Samuel Tripp 1 Year Experience (1with Eaton Vance
33 Years Experience (25 with Eaton Vance)
29 Years Experience (18 with Eaton Vance)
30 Years Experience (17 with Eaton Vance)
20 Years Experience (16 with Eaton Vance)
Credit Research
Brad Richards 3 Years Experience (3 with Eaton Vance)
Audrey S. Grant 1 Year Experience (1with Eaton Vance)
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Extensive and Experienced Capabilities Trading
Recovery Management / Credit Advisory
Andrew Sveen, CFA 20 Years Experience (16 with Eaton Vance)
Jake Lemle 7 Years Experience (7 with Eaton Vance)
David Aloise 40 Years Experience (15 with Eaton Vance)
Structured Products
Operations & Compliance
Product & Portfolio Strategy
Michael Kinahan, CFA 28 Years Experience (17 with Eaton Vance)
Michael Botthof 23 Years Experience (17 with Eaton Vance)
Christopher Remington 16 Years Experience (6 with Eaton Vance)
Additional Staff: 2 structured product professionals
Additional Staff: 7 operations/compliance professionals
David McKown 57 Years Experience (15 with Eaton Vance)
Howard Tiffen 43 Years Experience (2 with Eaton Vance)
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Investment Process Investable Universe
Select Universe
Target Portfolio
1500 Loans Qualitative Analysis
Quantitative Analysis
1000 Loans Structural Analysis
– Investment team identifies most appropriate opportunity set
Relative Value Analysis
450-550 Loans – Systematic risk-weighted construction driven by relative risk rankings
– Focus on diversification – Select universe analyzed through – S&P/LSTA Leveraged Loan Index & select – Position sizing optimized for optimal fundamental credit research process non-U.S. loans risk/return profile – Time-tested bottom-up credit research – Apply criteria (examples): – Relative risk rankings assigned by analysts • Minimum deal size • Maximum leverage Source: Eaton Vance. Illustrative purposes only. Not meant to represent any Eaton Vance Funds. • Qualitative assessments
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AGF Floating Rate Income Fund Review
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AGF Floating Rate Income Fund – Portfolio Statistics Asset Distribution Bank Loans Corporate Bonds Equity Net Cash & Equivalents Total
84.3% 12.6% 0.1% 3.0% 100.0%
Portfolio Statistics (Loan Portfolio) Total Net Assets: Number of Loans: Average loan size: Average loan size of TNA: Total loans (mkt value): Weighted average price (loans) Weighted average years to maturity Weighted average days to reset Loan duration Weighted average spread Weighted average LIBOR Weighted average all-in rate YTM
$284.9mm 322 $0.746mm 0.26% $240.2mm 97.75% 4.87 62 0.16986 3.76% 1.00% 4.76% 5.34%
Portfolio Statistics (Bond Portfolio) Number of Bonds: Total bonds (mkt value): Weighted average price (bonds) Weighted average years to maturity Bond duration Weighted average g coupon YTM YTW
73 $35.7mm 101.63% 5.81 3.18 7.32% 6.78% 6.03%
Assets by Country U.S. Australia Bermuda Canada Cayman Islands France Germany Luxembourg Netherlands Total Foreign Total
87.92% 0.93% 0.23% 3.47% 0.32% 0.63% 0.86% 3.14% 2.50% 12.08% 100.00%
Other Asset Distributions Covenant Lite 2nd Lien Bank Loans Portfolio Credit Quality Baa Ba B Caa Ca Total Weighted Average Credit Rating
Top Ten Industries Business Equipment & Services Health Care Electronics/Electrical Oil & Gas Chemicals & Plastics Retailers (except food & drug) Financial Intermediaries Insurance Industrial Equipment Food Service Total
9.58% 9.52% 8.06% 6.86% 6.74% 5.91% 4.71% 3.43% 3.40% 3.36% 61.56%
Portfolio Stats (Total Portfolio) Fund duration Fund weighted average years to maturity Net Yield
0.55 4.83 3.59%
Top Ten Holdings Transdigm, Inc. Asurion LLC Ineos US Finance LLC Syniverse Holdings, Inc. Dell Inc. 1011778 B.C. Unlimited Liability Company Guggenheim Partners, LLC AmWINS Group, LLC Apex Tool Group, LLC Kronos Incorporated Total
65.16% 4.45% % of MV 0.7% 33.0% 59.0% 5.5% 0.1% 100.0% B1
1.64% 1.42% 1.25% 1.14% 1.09% 1.03% 0.86% 0.82% 0.82% 0.82% 10.90%
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Source: Eaton Vance, March 31, 2015.
AGF Floating Rate Income Fund – Performance Calendar Return, USD As of March 31, 2015
2014
2013
AGF Floating Rate Income Fund (Gross)
2.5%
5.9%
AGF Floating Rate Income Fund (Net)
0.6%
3.9%
S&P/LSTA Leveraged Loan Index (USD)
1.6%
5.3%
Annualized Return USD As of March 31, 2015
3 mo.
1-yr
PSD*
AGF Floating Rate Income Fund (Gross)
2.2%
3.1%
5.1%
AGF Floating Rate Income Fund (Net)
1.8%
1.2%
3.1%
S&P/LSTA Leveraged Loan Index (USD)
2.1%
2.5%
4.8%
Source: AGF Investment Operations, as of March 31, 2015. USD. *Performance Start Date of May 1, 2012.
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Why AGF Floating Rate Income Fund, Why Now • • • • •
Eaton Vance is the largest floating-rate manager in North America with experience in this asset class dating back to 1989, substantially longer than any competing product in Canada. Floating-rate loans typically perform well in rising interest rate environments because of their short duration. Floating-rate loans have low to negative correlations with other typical fixedincome and equity asset classes Senior and secured: floating-rate loans have the highest priority in a company’s capital structure and are generally backed by hard assets in the form of collateral Short term: loans have an average life of three years and their coupons reset approximately every 55 days, resulting in little to no duration risk associated with these securities.
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Available Marketing Support For you and your clients
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Disclaimers Eaton Vance Management (Boston, Massachusetts), Portfolio Manager of AGF Floating Rate Income Fund, is an International Adviser relying on an exemption from Canadian registration requirements under National Instrument 31-103. All information is in Canadian dollars. The indicated rates of return are the historical annual compounded total return including changes in unit value and reinvestment of all dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any security holder that would have reduced returns. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. The payment of distributions should not be confused with a fund’s performance, rate of return or yield. If distributions paid by the fund are greater than the performance of the fund, your original investment will shrink. Distributions paid as a result of capital gains realized by a fund, and income and dividends earned by a fund are taxable in your hands in the year they are paid. Your adjusted cost base will be reduced by the amount of any returns of capital. If your adjusted cost base falls below zero, you will have to pay capital gains tax on the amount below zero. Past performance is not necessarily a guide to future performance. The value of investments and the income from them can fall as well as rise. Investments denominated in foreign currencies are subject to fluctuations in exchange rates, which may have an adverse affect on the value of the investments, sale proceeds, and on dividend or interest income. Investors may not necessarily recoup the full value of their original investment. Investors should be aware that forward looking statements and forecasts may not be realised. The commentaries contained herein are provided as a general source of information based on information available as of March 31, 2015 and should not be considered as personal investment advice or an offer or solicitation to buy and / or sell securities. Every effort has been made to ensure accuracy in these commentaries at the time of publication, however accuracy cannot be guaranteed. Market conditions may change and the manager accepts no responsibility for individual investment decisions arising from the use or reliance on the information contained herein. 1 of 2 93
DISCLAIMER CONTINUED ON FOLLOWING PAGE
Disclaimers References to specific securities are presented to illustrate the application of our investment philosophy only and are not to be considered recommendations by AGF Investments Inc. or Eaton Vance. The specific securities identified and described in this presentation do not represent all of the securities purchased, sold or recommended for the portfolio, and it should not be assumed that investments in the securities identified were or will be profitable. The information contained herein was provided by AGF Investment Operations and intends to provide you with information related to the AGF Floating Rate Income Fund at a point in time. It is not intended to be investment advice applicable to any specific circumstance and should not be construed as investment advice. Market conditions may change impacting the composition of a portfolio. AGF Investments Inc. and Eaton Vance Management assume no responsibility for any investment decisions made based on the information provided herein. Publication date: April 20, 2015 2 of 2
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