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Month ending 30 June 2017
NN Global Investment Grade Credit
Strategy Brief
Portfolio Management
Strategy Description
The strategy primarily invests in a diversified portfolio of global corporate bonds of high quality (with a rating of AAA to BBB-). We actively
manage the fund with a focus on bond selection and global sector allocation. We combine our analysis on specific issuers of corporate bonds
with a broader market analysis to construct the optimal portfolio. We
Experience since: aim to exploit differences in bond valuations across regions, sectors
1999
and quality segments (ratings).
Dorian Garay
Senior Portfolio
Manager US Credit
Roel Jansen
Head of Euro IG
Credit
Experience since:
2001
With firm since:
2008
With firm since:
1999
Joep Huntjens
Head of Asian IG
Credit
Experience since:
1996
With firm since:
1996
Supported by 6 Portfolio Managers, 14 Analysts and 3
Traders. Average years of experience: 16
Objective
The investment objective is to provide an average annualised 3-year
Information Ratio of 0.5.
Investment Process
The investment process combines a top down allocation approach
with strong bottom up issuer selection based upon proprietary fundamental research. The emphasis is on bottom up credit research aimed
at identifying credits that are under or overvalued based on their forecasted credit profile. We perform industry, issuer and issue analysis in
order to find those credits where the combination of forward-looking
fundamentals and current valuations stand out positively or negatively.
Contribution to Process and Returns
ESG
Int
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Re s
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Activ
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Responsible Investing Approach
s
SR
IS
o
For more information about our
responsible investing approach
within Global Investment Grade
Credit, please visit the strategy
page at www.nnip.com
NN Investment Partners at a Glance
NN Investment Partners is the asset manager of NN Group N.V.,
a publicly traded corpora­tion. NN IP is head-quartered in The
Hague, The Netherlands. NN IP manages in aggregate approximately EUR 194 bln* (USD 208 bln*) in assets for institutions and
individual investors worldwide. NN IP employs over 1,100 staff
and is active in 15 countries across Europe, U.S., Latin America,
Asia and Middle East.
* Figures as of 31 March 2017
For more information on NN IP’s investment strategies or our mutual
funds, please contact your sales representative or relationship manager.
Or visit our website www.nnip.com
HIGH Security Selection
Based on bottom up credit
research aimed at identifying
unrecognized value ahead of
consensus.
HIGH
LOW
LOW
Top Down Allocation
Based on our view on sectors,
credit quality, credit market
beta, duration and curve
positioning.
Key Elements of the Strategy
• P
roprietary disciplined investment process
The Global Credit strategy is based upon a proprietary disciplined investment process. The investment process has no style
bias and is designed to produce stable and consistent outperformance in both up and down markets
• In-house fundamental analysis
Our in house bottom up credit analysis by our experience credit
analysts is essential to identify and exploit relative value opportunities ahead of the market and avoid credit losses
• Experienced portfolio management team
The Global Credit portfolio management team consists of experienced investment specialists that have a strong performance
track record
• Embedded in Global Credit boutique
The Global Credit team is embedded in the Global Credit
Boutique, which provides a broad and dedicated team with a
focused investment culture, overlapping as well as tailored
investment processes with sophisticated risk management tools
at hand
www.nnip.com
NN Global Investment Grade Credit - Strategy Brief
Reference performance for this strategy: NN (L) Global IG Credit (Z Cap, EUR, Unhedged), gross of fees*
Portfolio Return
1 Month
3 Months
YTD
1 Year
3 Years (Ann.)
5 Years (Ann.)
Since Inception (Ann.)
-1.11
-2.68
-2.32
1.05
8.42
5.96
6.11
Benchmark Return
-0.99
-2.91
-2.73
0.00
7.53
5.39
5.57
Relative Return
-0.12
0.23
0.41
1.05
0.89
0.57
0.54
*
Source: NN IP Performance Measurement. Benchmark: Bloomberg Barclays Global Aggregate Corporate Index Unhedged in EUR.
Returns are presented after all transaction costs, but before management fees. Returns include the reinvestment of income.
Fund was launched on 10 May 2012.
Past performance is no guarantee of future results and the possibility of loss does exist.
Main Points
• NN (L) Global Investment Grade Credit returned -1.11% (EUR)
and posted an underperformance of 0.12%
• Global Investment Grade Credit spreads tightened modestly
during the month as the political uncertainty that led to an
increase of risk aversion during the second half of May subsided
• Corporate fundamentals continue to improve with a solid margin expansion and revenue growth. Credit quality has remained
strong with low default rates
• We like to be exposed to banks in this environment of improving
credit quality and low M&A event risk. The fund has overweight
positions in Banking, TMT and Energy and underweight positions in Retailers and Autos
Market Review
Global Investment Grade Credit spreads tightened modestly during the
month of June as the political uncertainty that led to an increase of risk
aversion during the second half of May subsided. During a hearing before
the Senate Intelligence Committee, former FBI director James Comey
declined to say whether President Trump’s encouragement to drop the FBI
investigation of former national security adviser Michael Flynn was
obstruction of justice. Despite media reports a week later that special
counsel Robert Mueller would expand his investigation to include an
examination of whether President Trump attempted to obstruct justice,
credit spreads tightened modestly as markets priced out an imminent risk
of political uncertainty and instead started to price in a protracted process with limited near-term market impact. Meanwhile, European credit
markets responded positively to developments in Italy, where a possible
multi-party deal on a new electoral law unraveled, lowering the probability
of early elections in 2017. The following weekend, the anti-European Five
Star Movement party suffered a significant setback in local elections and
this increased the probability for the ruling Democratic Party to hold on to
their position as the country’s largest party in Parliament after the next
elections in Italy. This led the European Investment Grade Credit market
to modestly outperform the U.S. Investment Grade Credit market, which
also saw some drag from the underperformance of its Energy sector, in
response to the drop in oil prices over the month.
In Europe, markets were supported by political developments as well as
regulatory intervention in the Spanish and Italian banking sectors. In
Spain, shares and AT1 instruments of Banco Popular were written down to
zero while other subordinated bonds were converted into shares which
were then sold for 1 Euro to Banco Santander. In Italy, Banca Popolare di
Vicenza and Veneto Banca will be wound down under national insolvency
law, also leading to a write-down of the banks’ shares and subordinated
bonds to zero, with Intesa Sanpaolo acquiring the good assets from the
banks, along with a capital injection and guarantees from the Italian State
to make the acquisition capital neutral for Intesa. In both cases, senior
bonds of the banks were assumed by the acquiring entities (Santander
and Intesa) and as the interventions showed the reluctance and/or practical difficulties in imposing losses on senior debt, the interventions led to
outperformance of European senior unsecured bank debt while also leading to a rally in subordinated bank debt of Italy’s largest banks, as other
than the bail-in of equity and subordinated bonds, no private sector capital was involved in the transaction.
Investment Performance
NN (L) Global Investment Grade Credit returned -1.11% (EUR) for the
month of June 2017 and posted an underperformance of 0.12%. Our YTD
relative performance continues to be on solid foot at +41bps. The negative
relative performance of the month is primarily associated to a single
issuer event in Europe and sector allocation in US, while Asia contributed
positively to partly offset the other regions. The event was related to
VIVAT, Dutch insurer, as its parent Angbang Insurance Company Group
faces challenges since Chinese authorities asked banks to suspend business dealings with the insurer. We analyzed the situation and decided to
reduce exposure on the name given negative technicals on a potential
downgrade below IG ratings which would increment selling pressure in the
name. We are less concerned about the fundamental story of the company given that its operations and credit profile continues to be attractive,
and it is a subsidiary which is regulated by Dutch authorities ring-fencing
assets from any discretionary parent action.
Our US sector position was a negative performance contributor as our
energy exposure suffered a back drop given recent weakness in oil prices
to below $43pb in June from a peak of $51pb in May. Even though, we continued to be cautious on oil price volatility given concerns on excess of
supply despite efforts from OPEC to curb production, we considered this
as an opportunity to add exposure in the mid-stream names where earnings are driven 90% by volume (10% by commodity prices) with long
term-contracts and which hold strong balance sheets to withstand nearterm volatility.
Outlook and Portfolio Positioning
The global macroeconomic environment has been mixed in the past 3
months with improving economic activity in Europe and Japan, and softening data coming out of US and Emerging Markets. Europe has shown
significant progress on improving labor markets and business sentiment
with inflation moving closer to target. In contrast, US economy has been
softening specially on Personal Consumption and Retail sales, as well as
recent inflation data despite of a strong performance in the US labor market. We are monitoring this “soft patch” in US economic data as the
underlying recovery might be weaker than expected. On the political side,
Europe has also been moving on the positive side after French presidential
elections. In contrast, US political environment seems to be less optimistic
than we expected at the beginning of the year. The new administration
has had a rough start with failed attempts to move its political agenda
which has undermined not only credibility, but also approval rates which
have been falling significantly undermining political capital necessary to
move a pro-growth agenda. The political uncertainty can also translate
into weaker business and consumer confidence with negative effects on
economic activity.
Overall, corporate fundamentals continue to improve with a solid margin
expansion and revenue growth. Credit quality has remained strong with
low default rates and loan delinquencies. We keep a beta of 1 in the portfolio as we see better value in defensive industries that are less leveraged
to economic growth and driven mainly by cash flow generation and balance sheet strength. We see value in funding M&A deals as far as they are
balanced appropriately with equity and debt, and management shows a
clear guidance regarding a deleveraging path. These deals come with relatively attractive spreads and limited event risk. On financials, we like
regional banks over money centers, as regional banks with sounded fundamentals are less exposed to market volatility than money centers.
Additionally, we like highly rated European insurance companies exposed
to life and US title insurance oriented to particular sectors like housing.
We like to be exposed to banks in this environment of improving credit
quality and low M&A event risk. We like sectors like Banking, TMT and
Energy. We dislike Retailers (department stores exposed to apparel) and
Autos.
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Month ending 30 June 2017
Portfolio Highlights*
Portfolio Characteristics
Portfolio Characteristics
Currency
Strategy Assets under Management
EUR
Option Adjusted Spread
114bp
€113 mln
Duration x Spread Beta
1.07
3.11%
Number of Issuers
121
Duration
6.65
Number of Issues
141
Spread Duration
5.25
Effective Rating
Yield to Maturity
BBB+
Rating Position**
Market Value
30%
19.20% 19.99%
20%
14.73%
15%
10%
11.26%
7.78%
7.08%
5.29%
5%
--
0%
Benchmark
17.67%
16.53%
12.11%
10.45%
Portfolio
23.84%
23.49%
25%
1.66% 1.48%
Cash & FX
--
AAA
1.21%
1.06% 1.49%
AA+
1.54%
1.19%
AA
AA-
--
A+
A
A-
BBB+
BBB
BBB-
0.02%
0.92%
BB+
--
NR
Rating Position**
Duration x Spread
450
400
Portfolio
360.91
Benchmark
350
300
236.24
250
193.92
200
150
100
50
--
--
0
5.70 13.43
Cash & FX
8.40
--
AAA
0.79 10.75
AA+
1.81
AA
78.02
51.65
31.78
168.76
145.25
132.69
27.21
2.77
AA-
104.87
138.55
A+
A
-A-
BBB+
BBB
BBB-
0.18
0.89
BB+
0.07
NR
Sector Positioning
Market Value
30%
Portfolio
25.36%
22.94%
25%
Benchmark
20%
13.61%
15%
10%
8.74%
8.70%8.98%
7.57%
6.50%
5.73%
4.41%
7.08%
5%
7.46%
5.47%
0.00%
0%
4.45%
4.36%
5.64%
0.00%
5.64%
3.58% 3.19% 3.08%4.57% 3.01%
3.53%
1.95%
1.88%1.74% 1.77%
1.65%1.24% 1.30%1.32% 0.70%
1.42%2.07%
1.22%
0.23% 0.62%1.16%
0.00%
4.27%
Sector Positioning
Duration x Spread
280
240
203.31
200
160
108.53
85.94
120
80
40
0
-
-
89.31
Portfolio
211.21
111.74
111.16
54.38 46.10 60.17
49.75
62.77
23.25
-
24.27
Benchmark
87.98
48.24
39.37
32.56 29.14
33.10
17.76
16.93
10.52
37.12
5.68
43.55 37.91
12.66
6.58 -
9.89 10.37
21.21 13.98
5.05 2.79
7.10 14.02
* Source: NN Investment Partners. All data are expressed as of 30 June 2017.
** The rating of each security in the fund and benchmark index is determined by taking the 2nd best rating of the available ratings issued by Moody’s, Fitch and S&P. Where no rating is given, the NN IP rating is used. If NN IP also does not assign a rating, then a “not-rated” score is assigned.
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NN Global Investment Grade Credit - Strategy Brief
Share Classes
ISIN
I Capitalisation
LU0674860720
Currency
Max Management
Fee (%)
Fixed Service
Fee (%)
Ongoing charges including
management fee (%)
Minimum Investment
EUR
0.36
0.12
0.49
€ 250,000
Key Characteristics of the Strategy
Objectives
Investment objective
Outperform the Global Investment Grade Credit benchmark via active management
Benchmark
Bloomberg Barclays Global Aggregate Corporate Index
Other Characteristics
Investment universe
• Only investment grade instruments
• Issuers domiciled in developed countries and developing countries
• Ability to invest in off-benchmark issue(r)s
Currency
No currency risk versus the benchmark
Duration
• Maximum duration deviation versus the benchmark: +/- 2 year
Number of issuers
>80
Maximum issuer exposure
versus the benchmark
Instruments
• Per AAA/AA issuer: +4%
• Per A issuer:
+3%
• Per BBB issuer: +2%
• Per sector: +/- 10%, per rating: +/- 20%
Bonds, Credit Default Swaps (single-name corporate, indices, sovereign)
Derivatives for hedging purposes: (CC)IRS, bond futures, FX forwards
Disclaimer
This document has been prepared solely for promotional purposes and does not
constitute an offer, in particular a prospectus or any invitation to treat, buy or sell
any security or to participate in any trading strategy and cannot be understood as
provision of investment services. The content of this document is based upon
sources of information believed to be reliable. However, no guarantee, warranty or
representation, express or implied, is given as to the accuracy, correctness or completeness of such information; and neither NN Investment Partners B.V., NN
Investment Partners Holdings N.V. and its subsidiaries, nor any other company or
unit belonging to the NN Group, nor any of its officers, directors or employees
accept any liability or responsibility in respect to the information or any recommendations expressed herein. Any information given in this document may be subject to
change or update without notice. Investment sustains risks. Please note that the
value of your investment may rise or fall and also that past performance is not indicative of future results and shall in no event be deemed as such. Do not take unnecessary risk. Read the Key Investor Information Document. The prospectus, supplement and the Key Investor Information Document are available on the following
website: www.nnip.nl. Any claims arising out of or in connection with the terms and
conditions of this disclaimer are governed by Dutch law.
The fund is a subfund of NN (L) (SICAV), established in Luxembourg. NN (L) is duly
authorised by the Commission de Surveillance du Secteur Financier (CSSF) in
Luxembourg. Both funds are registered with the CSSF.
For more detailed information about the investment fund we refer to the prospectus
and the corresponding supplements. In relation to the investment fund mentioned in
this document a Key Investor Information Document (KIID) has been published containing all necessary information about the product, the costs and the risks which
may occur. Do not take unnecessary risk. Read the prospectus and the KIID before
investing. Investments are accompanied by risks. The value of your investments
depends in part upon developments on the financial markets. In addition, each fund
has its own specific risks. See the prospectus for fund-specific costs and risks. The
prospectus, supplement and the Key Investor Information Document are available
on the following website: www.nnip.com. This document is not directed at, and must
not be acted upon by citizens of the United States (US) and is otherwise only
directed at persons residing in jurisdictions where the relevant share classes/(sub)
funds are authorised for distribution or where no such authorisation is required.
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