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For professional use only 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 io n lu t ri ct tio Re s ns hip ers wn ion rat eg Activ eo 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. 2 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. 3 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. 4