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(*) DPAM L Bonds Emerging Markets Sustainable - F Institutional Factsheet | 30 June 2017 Morningstar (*) MANAGER COMMENT Market comment Emerging market (EM) debt finished the second quarter of the year seeking a second wind amidst a less dovish tone from the central banks of developed economies, falling oil prices, mounting political turbulence out of a couple of key emerging countries and, maybe, a lack of inspiration ahead of the summer lull. Mounting political noise includes the controversies around presidents Michel Temer in Brazil and Jacob Zuma in South Africa. An eviction of Temer would be bad news for Brazilian assets, while the main element of support in South African markets is the hope to see Zuma dismissed. We therefore stay cautious on both markets but are not overly concerned, as there is no reason to believe they would necessarily be replaced by antireform contenders. Energy prices have been falling each and every month of this first semester without damage to EM assets, but the old correlation between oil and EM currencies (FX) was revived on the back of higher supply (out of Libya, Nigeria and US shale producers), stubbornly high US inventories and the outbreak of a dispute between Qatar and its Gulf Cooperating Council neighbors. Interestingly and reassuringly, metal and agriculture commodities failed to follow on that same path. The Fed, Bank of England and the ECB surprised the core rate markets by conveying a somewhat hawkish message about monetary policy normalization. We do not expect the move to escalate in a disorderly way, but will keep a wary eye on what is one of the main factors determining the level of the risk premium in risky assets. On the bright side, China is staying off the bears’ radar, with economic data surprising to the upside, the inclusion of China A-share equities into the MSCI benchmark EM Index and the launch of the so-called Bond Connect, a Hong-Kong-based bond-trading platform facilitating access to the Chinese on-shore debt market for international investors. Looking at global EM debt indices, gains were skewed towards local rates again, while credit and EM FX (against EUR) were weak: ● ● EM local government debt was down 0.91% in unhedged EUR terms, while the EUR-hedged equivalent gained 0.26%, as measured by Bloomberg Barclays EM Local Currency Government, 10% countrycapped, indices (Bloomberg tickers: EML1TREU and EML1TREH). EM sovereign credit in hard currency fell 1.41% in unhedged EUR terms, as measured by the Bloomberg Barclays EM Hard Currency Aggregate Sovereign Index (Bloomberg ticker: LG20TREU). From a regional perspective and in EUR terms, the best performer in the local currency space was, by a landslide, Mexico. At the other end of the spectrum, Brazil, Korea, Colombia and Russia delivered the worst returns. Rating changes (Foreign Currency Long-Term Debt): ● ● Downgrades: South Africa from Baa2 to Baa3 (Moody’s), Qatar from AA to AA- (S&P’s), Ecuador from B to B- (S&P’s). Upgrades: none. Main central bank actions (Key policy rate): ● ● Rate cuts: Colombia by 50 basis points (bp) to 5.75%, Russia by 25 bp to 9.00%, Belarus by 100 bp to 12.00%, Kazakhstan by 50 bp to 10.50%, Mongolia by 200 bp to 12.00%, Uganda by 100 bp to 10.00%, Rwanda by 25 bp to 6.00%. Rate hikes: Mexico by 25 bp to 7.00%, Hong Kong by 25 bp to 1.50%, Saudi Arabia by 25 bp to 1.25%, UAE by 25 bp to 2.00%, Qatar by 25 bp to 1.50%, Bahrain by 25 bp to 1.50%, Jordan by 25 bp to 3.75%. Performance The Net Asset Value of the F share class lost 0.44% in June and is up 3.77% year-to-date. Last month’s performance topped our reference sample of local currency peers and indices again. This time, the main positive drivers of outperformance came from our positioning in Mexico, Korea and Brazil as well as by the absence of Russia from our portfolio. Core rate duration management was a positive contributor too. The only drag on performance was the exposure to the Argentinian and Colombian pesos and the USD. Last month’s strategy In Central Europe, we increased Poland and Czech Republic at the expense of Romania and Croatia. In Africa, we increased Mozambique, Ivory Coast and Senegal and extended duration in South Africa. In Latin America, we increased Argentina, Colombia, Chile and Uruguay. In Asia, we increased exposure to the Indian rupee. Outlook & strategy going forward The major convergence trade between emerging and developed market rates remains the underlying driving force. Even after more than a year of rally, valuations in local currency debt are still attractive on a medium-term horizon. On a shorter-term horizon, we are becoming more cautious due to higher core interest rates and as cross-asset volatilities seem to be bottoming out. In this context, our intention is to continue to actively manage duration amidst the core rate normalization, to reduce FX exposure to liquidity currencies and to optimize risk contribution through deeper diversification and granularity across select frontier markets. (*) Morningstar Rating Overall Thierry Larose is AAA-rated by Citywire for his rolling 3-year risk-adjusted performance, for the period ending March 2016. Source and Copyright: Citywire. DPAM is signatory of the United Nations Principles for Responsible Investment (UN PRI). Please read the important information at the end of this document. 1 DPAM L Bonds Emerging Markets Sustainable - F Institutional Factsheet | 30 June 2017 INVESTMENT UNIVERSE OVERVIEW Asset Class Bonds Category Emerging Markets Strategy Active Strategy Fund Of DPAM L Legal Structure SICAV Domicile Luxembourg Reference Currency EUR Liquidity Daily Sub-fund launch 18.03.2013 First NAV date 18.03.2013 Countries notified for public sale AT, CH, DE, ES, FI, FR, GB, IT, LU, NL ISIN LU0907928062 Entry Fee Maximum 1% Exit Fee 0.00% Management Fee 0.40% TER (31.12.2016) 0.74% Minimum investment EUR 25'000 NAV (Capitalisation) 125.62 Assets (all classes) mn EUR 742.17 Number of positions 74 -0.44 3.77 8.17 8.08 - PORTFOLIO CHARACTERISTICS Maturity (Years) Duration (Years) Modified Duration (%) Yield to Worst (%) YTW (ModDur Weighted) (%) Number of Issuers BREAKDOWNS (%) Countries Mexico Poland Brazil Czech Republic Colombia Indonesia Supranational South Africa Peru Chile Other Cash Currencies after hedging 9.8 9.2 8.9 6.2 5.5 5.2 4.8 4.7 4.2 4.1 32.4 4.9 Credit Ratings (Scale S&P) PERFORMANCES (%) 1 month YTD 1 year 3 years annualised 5 years annualised 10 years annualised The fund principally invests in bonds and/or other debt securities, including but not limited to, perpetual bonds, inflation-linked bonds, zero coupon bonds and structured products, such as for example, credit linked notes, with a fixed or floating rate, denominated in any currency, issued (or guaranteed) by emerging countries, including its regional public authorities and public (or equivalent) bodies or by international public bodies, such as World Bank or the European Bank for Reconstruction and Development and selected on the basis of sustainable development criteria, such as, for example, social equity, environmental awareness and socially equitable political and economic governance. 9.81 6.06 5.73 5.77 5.70 31 AAA AA A BBB BB B C-Category Not Rated Cash DPAM is signatory of the United Nations Principles for Responsible Investment (UN PRI). Please read the important information at the end of this document. US Dollar Polish zloty Mexican peso Euro Brazilian real Czech koruna Colombian peso Indonesian rupiah Indian rupee Peruvian sol Other 9.7 9.2 9.0 8.9 6.2 6.2 5.5 5.2 4.8 4.2 31.1 Modified Durations 4.8 10.3 22.4 31.7 11.8 12.2 0.7 1.2 4.9 < 3% 3 - 5% 5 - 7% 7 - 10% 10 - 15% > 15% Cash 15.1 13.3 27.1 27.2 9.5 2.8 4.9 2 DPAM L Bonds Emerging Markets Sustainable - F Institutional Factsheet | 30 June 2017 Reference Currency EUR | Since Inception (18.03.2013) Fund DISTRIBUTION OF MONTHLY RETURNS CUMULATIVE PERFORMANCE 130% 125% 10 120% 8 115% 6 110% 105% 4 100% 2 95% 90% 0 -5 -4 -3 -2 -1 0 1 2 3 4 5 STATISTICS Volatility Sharpe Ratio Downside Deviation Sortino Ratio Positive Months Maximum Drawdown 2013 % 2014 2015 2016 2017 12-MONTH ROLLING RETURNS % 8.51 0.65 4.95 1.11 59.62 -12.45 % % % Risk-Free Rate -0.08% 20% 10% 0% -10% 2013 2014 2015 2016 2017 2015 2016 2017 MONTHLY RETURNS 5% 0% -5% 2013 2014 MONTHLY RETURNS IN % January February March April May June July August September October November December Year 2013 2014 2015 2016 Fund Fund Fund Fund Fund -0.25 1.38 -2.91 -4.06 -0.48 -1.80 1.44 1.71 -2.42 -1.09 -8.32 -0.27 0.57 2.63 0.67 3.86 0.83 1.15 2.55 0.70 2.60 0.33 -0.48 16.12 8.03 0.06 0.90 -1.73 -0.39 -2.97 -0.38 -4.73 -2.88 3.98 3.37 -4.06 -1.53 0.03 0.93 3.13 2.29 -1.24 5.31 1.41 1.02 0.38 2.55 -2.91 1.82 15.48 0.45 3.76 1.66 -0.99 -0.65 -0.44 DPAM is signatory of the United Nations Principles for Responsible Investment (UN PRI). Please read the important information at the end of this document. 2017 3.77 3 IMPORTANT INFORMATION - FOR AUTHORIZED USE ONLY The information contained in this document and attachments (hereafter the ‘documents’) is provided for pure information purposes only. Present documents do not constitute investment advice nor do they form part of an offer or solicitation for the purchase of shares, bonds or mutual funds, or an invitation to buy or sell the products or instruments referred to herein. Applications to invest in any fund referred to in these documents can only validly be made on the basis of the Key Investor Information Document (KIID), the prospectus and the latest available annual and semi-annual reports. These documents can be obtained free of charge at Degroof Petercam Asset Management sa or on the website funds.degroofpetercam.com. All opinions and financial estimates herein reflect a situation at the date of issuance of the documents and are subject to change without notice. Indeed, past performances are not necessarily a guide to future performances and may not be repeated. Degroof Petercam Asset Management sa (“DPAM”) whose registered seat is established Rue Guimard, 18, 1040 Brussels and who is the author of the present document, has made its best efforts in the preparation of this document and is acting in the best interests of its clients, without carrying any obligation to achieve any result or performance whatsoever. The information is based on sources which DPAM believes are reliable. However, DPAM does not guarantee that the information is accurate and complete. Present documents may not be duplicated, in whole or in part, or distributed to other persons without prior written consent of DPAM. These documents may not be distributed to private investors and their use is exclusively restricted to institutional investors.