Stone Harbor Investment Partners LP Breakfast Seminar London 28 - - PowerPoint PPT Presentation
Stone Harbor Investment Partners LP Breakfast Seminar London 28 January 2016 Todays Agenda 1. Understanding the Current Cycle 2. Interest Rates The Major Secular Call 3. Cyclical Economic Overview 4. Headwinds Energy and
London 28 January 2016
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1. Understanding the Current Cycle 2. Interest Rates – The Major Secular Call 3. Cyclical Economic Overview 4. Headwinds − Energy and Commodities − Corporate Growth and Profitability − Productivity
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As of 31 December 2015 The information above is intended to illustrate how a Multi-Asset Credit portfolio may be constructed at various points in a market cycle. There is no assurance that target allocations would have been
Duration (years) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Treasuries/Cash IG Corporates Securitized Bank Loans EMD - Corporate U.S. High Yield European High Yield EMD - Hard EMD - Local 2.00 2.50 3.00 3.50 4.00
Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15
5 0.8 0.3 0.1
6 12 18 Eur HY EM Sov HC EM Corp Securitized Loans U.S. IG Corp U.S. HY EM Sov LC
2015 Excess Returns (%)
%
As of 31 December 2015 Sources: Barclays, BofA Merrill Lynch, J.P. Morgan, S&P/LSTA 500, Stone Harbor Investment Partners LP
1For full description of the Barclays Capital U.S. Aggregate Corporate Index, Barclays Capital U.S. Securitized Index, BofA Merrill Lynch European Currency Non Financial High Yield 2% Constrained
Index, BofA Merrill Lynch High Yield Master II Index, J.P. Morgan EMBI Global Diversified Index, J.P. Morgan CEMBI Broad Diversified Index, J.P. Morgan GBI EM Global Diversified Index and S&P/LSTA 500 Leveraged Loan Index, please refer to the endnotes. For illustrative purposes only.
1 1 1 1 1 1 1 1
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As of 31 December 2015 Sources: Barclays, BofA Merrill Lynch, J.P. Morgan, S&P/LSTA 500, Stone Harbor Investment Partners LP
1For full description of the Barclays Capital U.S. Aggregate Corporate Index, Barclays Capital U.S. Securitized Index, BofA Merrill Lynch European Currency Non Financial High Yield 2% Constrained
Index, BofA Merrill Lynch High Yield Master II Index, J.P. Morgan EMBI Global Diversified Index, J.P. Morgan CEMBI Broad Diversified Index, J.P. Morgan GBI EM Global Diversified Index, and S&P/LSTA 500 Leveraged Loan Index, please refer to the endnotes. For illustrative purposes only.
Excess Returns Securitized1 U.S. IG Corp1 Loans1 U.S. HY1 Eur HY1 EM Corp1 EM HC1 EM LC1 1996 1.21% 1997
2.17% 1998
0.44%
1999 1.14% 1.75%
6.17% 17.19% 22.48% 2000
0.31% 2001
2.48% 0.12%
2.89% 2002 1.56%
0.31%
1.63% 2003 0.31% 5.66% 8.67% 24.74% 23.96% 15.58% 21.82% 14.58% 2004 1.37% 1.59% 3.95% 7.52% 10.02% 7.27% 8.28% 20.55% 2005
2.00% 0.52% 2.86% 3.68% 7.30% 4.60% 2006 1.17% 1.23% 1.90% 7.94% 7.94% 3.85% 7.54% 11.35% 2007
8.40% 2008
2009 6.99% 23.28% 51.38% 59.06% 62.47% 40.77% 41.22% 23.75% 2010 3.08% 2.04% 9.99% 9.09% 9.68% 8.10% 5.39% 9.74% 2011
1.45%
2012 1.32% 7.10% 9.58% 13.25% 20.11% 13.61% 15.63% 14.74% 2013 1.01% 3.02% 5.24% 9.62% 9.99% 2.94%
2014 0.41%
1.56%
1.31% 0.21% 0.13%
2015
0.78% 0.13% 0.31%
7 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 75 150 225 300 375 450 525 600 675 750 825 900 975 1050 1125 1200 1275 1350 1425 1500 1575 1650 1725 1800 1875 1950 EMBI G D - Current Level EMBI G D (Aug 1998 - Oct 1998) EMBI (Dec 1994 - Dec 1995) EMBI (Dec 1990 - Jan 1991) EMBI / EMBI G D (Dec 1990 - Nov 2015) 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 75 150 225 300 375 450 525 600 675 750 825 900 975 1050 1125 1200 1275 1350 1425 1500 1575 1650 1725 1800 1875 1950 Current Level Sep 2008 - May 2009 Sep 2002 - Oct 2002 Oct 1990 - Jan 1991 Jan 1986 - Nov 2015 0% 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 75 150 225 300 375 450 525 600 675 750 825 900 975 1050 1125 1200 1275 1350 1425 1500 1575 1650 1725 1800 1875 1950 Current Level Sep 2008 - Aug 2009 Jan 2000 - Nov 2015 0% 5% 10% 15% 20% 25% 30% 35% 75 150 225 300 375 450 525 600 675 750 825 900 975 1050 1125 1200 1275 1350 1425 1500 1575 1650 1725 1800 1875 1950 Current Level Sep 2008 - March 2009 Jan 1973 - Nov 2015
As of 31 December 2015
1 Represents entire history of spreads for this period, minus the spread history represented by other periods described above.
Sources: Barclays, Credit Suisse, J.P. Morgan, Stone Harbor Investment Partners LP The EMD benchmark uses J.P. Morgan EMBI G D from January 1998 forward, and J.P. Morgan EMBI prior to 1998. For full description of the Barclays Capital U.S. Aggregate Corporate Index, Credit Suisse High Yield Index, Credit Suisse Leveraged Loan Index, J.P. Morgan EMBI and J.P. Morgan EMBI Global Diversified Index please refer to the endnotes. For illustrative purposes only.
Barclays U.S. Aggregate Corporate Index
1
Credit Suisse High Yield Index J.P. Morgan EMBI / J.P. Morgan EMBI Global Diversified
1
Credit Suisse Leveraged Loan Index Discount Margin (4-year life)
1 1
8 0% 20% 40% 60% 80% 100% Q1/2001 Q2/2001 Q3/2001 Q4/2001 Q1/2002 Q2/2002 Q3/2002 Q4/2002 Q1/2003 Q2/2003 Q3/2003 Q4/2003 Q1/2004 Q2/2004 Q3/2004 Q4/2004 Q1/2005 Q2/2005 Q3/2005 Q4/2005 Q1/2006 Q2/2006 Q3/2006 Q4/2006 Q1/2007 Q2/2007 Q3/2007 Q4/2007 Q1/2008 Q2/2008 Q3/2008 Q4/2008 Q1/2009 Q2/2009 Q3/2009 Q4/2009 Q1/2010 Q2/2010 Q3/2010 Q4/2010 Q1/2011 Q2/2011 Q3/2011 Q4/2011 Q1/2012 Q2/2012 Q3/2012 Q4/2012 Q1/2013 Q2/2013 Q3/2013 Q4/2013 Q1/2014 Q2/2014 Q3/2014 Q4/2014 Q1/2015 Q2/2015 Q3/2015 Q4/2015
U.S. High Yield New Issuance Use of Proceeds by QTR1
Acquisition Capex Dividend/recap Exit Financing Other General Corporate Purposes Leveraged Buy Outs Repay bank debt Refinance Redeem notes
As of 31 December 2015. Source: The Prospect News High Yield Daily. 1 The tables include all dollar-denominated offerings sold as public or Rule 144A deals reported to Prospect News. Offerings are included in the time period in which they price. Issues maturing in 397 days or less are excluded. Convertibles, trust preferreds, capital securities and preferred stock are excluded. Fixed rate medium-term notes with a face value above 100 million are included. All other MTNs are excluded. Deals rated investment grade by either Standard & Poors or Moody's Investors Services are excluded, but deals not rated by both are included. Amounts are based on the total sales price (face amount multiplied by the offering price). Units made up of a bond and a warrant are included; other units are excluded. Each tranche is counted as a separate deal. Pass-throughs, collateral trust and equipment trust certificates are included. 2 Multiple uses in different categories without one dominating (75%) category, spinoffs, and issuance with no information on use of proceeds. For illustrative purposes only.
M&A activity has risen sharply although LBO issuance remains subdued
2
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As of 31 December 2015 Source: The Prospect News High Yield Daily For illustrative purposes only.
Higher M&A or LBO issuance tends to be associated with lower subsequent credit returns
0% 20% 40% 60% 80% 0% 5% 10% 15% 20% 25% 30% 35% 40% 45% 50%
Subsequent 12 Month U.S. HY Excess Return (2002-2015) Use of Proceeds % (2001 - 2014) % LBO % Acquisition
Current LBO Current M&A
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1 2 3 4 5 6 7 8 Mar-98 Jun-99 Sep-00 Dec-01 Mar-03 Jun-04 Sep-05 Dec-06 Mar-08 Jun-09 Sep-10 Dec-11 Mar-13 Jun-14 Sep-15 Leverage Ratio
U.S. HY Net Leverage Ratio
U.S. HY U.S. HY Ex. Energy, Metals & Mining
As of 30 September 2015 Sources: BofA Merrill Lynch For full description of the BofA Merrill Lynch U.S. High Yield Master II Index, please refer to the endnotes. For illustrative purposes only.
Corporate leverage is high and rising
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Spreads have only partially recognized this
As of 30 September 2015 Sources: BofA Merrill Lynch For full description of the BofA Merrill Lynch U.S. High Yield Master II Index, please refer to the endnotes. For illustrative purposes only.
50 100 150 200 250 300 350 400 450 500 Mar-98 May-99 Jul-00 Sep-01 Nov-02 Jan-04 Mar-05 May-06 Jul-07 Sep-08 Nov-09 Jan-11 Mar-12 May-13 Jul-14 Sep-15 Spread per Turn of Net Leverage
U.S. High Yield Spread per Turn of Net Leverage
U.S. HY U.S. HY Ex. Energy, Metals & Mining
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Current spread to leverage levels may weigh on credit returns
0% 20% 40% 60% 80% 50 100 150 200 250 300 350 400 450 500
Subsequent 12 Month HY Excess Return (1999 - 2015) Spread per Turn of Leverage (1998 - 2014)
Dotted lines from left to right represent U.S. HY and U.S. HY Ex. Energy, Metals & Mining
As of 31 December 2015 Sources: BofA Merrill Lynch For full description of the BofA Merrill Lynch U.S. High Yield Master II Index, please refer to the endnotes. For illustrative purposes only.
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The low yield environment has allowed companies to carry higher debt levels with low impact on cash flow
As of 30 September 2015 Sources: BofA Merrill Lynch For full description of the BofA Merrill Lynch U.S. High Yield Master II Index, please refer to the endnotes. For illustrative purposes only.
1 1 2 2 3 3 4 4 5 Mar-98 May-99 Jul-00 Sep-01 Nov-02 Jan-04 Mar-05 May-06 Jul-07 Sep-08 Nov-09 Jan-11 Mar-12 May-13 Jul-14 Sep-15 Coverage Ratio
U.S. HY Coverage Ratio
U.S. HY U.S. HY Ex. Energy, Metals & Mining
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10 20 30 40 50 60 70 80 90 Mar-98 Jun-99 Sep-00 Dec-01 Mar-03 Jun-04 Sep-05 Dec-06 Mar-08 Jun-09 Sep-10 Dec-11 Mar-13 Jun-14 Sep-15
% U.S. HY Ex. Energy, Metals & Mining + Telecom Distress Ratio vs Defaults (%)
U.S. HY Distress Ratio U.S. HY Default Rate Ex Telecom + Ex. Energy, Metals & Mining Distress Ratio Ex Telecom + Ex. Energy, Metals & Mining Default Ratio 10 20 30 40 50 60 70 80 90 Mar-98 Jun-99 Sep-00 Dec-01 Mar-03 Jun-04 Sep-05 Dec-06 Mar-08 Jun-09 Sep-10 Dec-11 Mar-13 Jun-14 Sep-15 % U.S. HY Distress Ratio vs Defaults (%) U.S. HY Distress Ratio U.S. HY Default Rate
Distress levels lead defaults and are key
Metals & Mining
As of 31 December 2015 Sources: BofA Merrill Lynch For full description of the BofA Merrill Lynch U.S. High Yield Master II Index, please refer to the endnotes. For illustrative purposes only.
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0% 20% 40% 60% 80% 10 20 30 40 50 60 70 80 90
Subsequent 1 yr Excess Return
Subsequent 1 yr Excess Return
Longer term value exists, but further stress required to support shorter term positivity
0% 20% 40% 60% 80% 100% 10 20 30 40 50 60 70 80 90
Subsequent 3 yr Excess Return
Subsequent 3 yr Excess Return
Dotted lines from left to right represent U.S. HY and U.S. HY Ex. Energy, Metals & Mining
As of 31 December 2014 Sources: BofA Merrill Lynch For full description of the BofA Merrill Lynch U.S. High Yield Master II Index, please refer to the endnotes. For illustrative purposes only.
Excess Return Excess Return Distress Ratio Distress Ratio
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Internal market behavior exhibits higher risk
1 2 3 4 5 Apr-04 Jun-05 Aug-06 Oct-07 Dec-08 Feb-10 Apr-11 Jun-12 Aug-13 Oct-14 Dec-15 Sector Return Dispersion Z-Scores - Rolling 60 Days US HY - TR Dispersion Z-Score
As of 31 December 2015 Sources: BofA Merrill Lynch For full description of the BofA Merrill Lynch U.S. High Yield Master II Index, please refer to the endnotes. Z-Scores = (Current Spread minus Average Spread) divided by Standard Deviation of Spread. For illustrative purposes only.
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As of 24 November 2015 Sources: BofA Merrill Lynch, The HY Wire (2016 Outlook: May the odds be ever in your favor) For full description of the BofA Merrill Lynch U.S. High Yield Master II Index, please refer to the endnotes. For illustrative purposes only.
Investors are quick to punish failure to deliver
Number of ex-Commodity bonds experiencing more than 10% price loss in a month
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2015 is evolving in a similar fashion to the early 2000s credit cycle
5 10 15 20 25 30 35 40 45 2.00 2.50 3.00 3.50 Distress Ratio Coverage Ratio
Distress Ratio vs Coverage Ratio September 1999-September 2003
<-5% 1yr Excess Return
>5% 1 yr Excess Return 5 10 15 20 25 30 2.00 2.50 3.00 3.50 4.00 Distress Ratio Coverage Ratio
Distress Ratio vs Coverage Ratio September 2013-December 2015
<-5% 1yr Excess Return
>5% 1 yr Excess Return 2015
start end
As of 31 December 2015 Sources: BofA Merrill Lynch For full description of the BofA Merrill Lynch U.S. High Yield Master II Index, please refer to the endnotes. For illustrative purposes only.
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Dark Red: U.S. Light Red: Britain Long-term interest rates
In the long arc of history, high interest rates from 1970 to 2007 look like the aberration, not the norm. United States rate is the yield on a 10-year Treasury bond. British rate is effective market rate on “perpetual” bond originally issued in 1742.
Why Very Low Interest Rates May Stick Around
As of 20 January 2016 Source: Global Financial Data For illustrative purposes only.
21
22
Fed GDP Forecast
(last obs. December 16, 2015 forecast)
As of 16 December 2015 Sources: Encima Global, Federal Reserve For illustrative purposes only.
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FOMC Participants’ Assessments of Appropriate Monetary Policy
(Mid-point of Fed-Funds Range, December 2015 FOMC Meeting)
As of 16 December 2015 Source: Federal Reserve For illustrative purposes only.
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U.K.: Retail Sales Volume Index
SA, 2012=100
U.K.: New Passenger Car Registrations
SA, Units
U.K.: Industrial Production: Manufacturing
SA, 2012=100
As of 20 January 2016 For illustrative purposes only.
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EU 28: Retail Sales Value Index
SA/WDA, 2010=100
EU 27: New Passenger Car Registrations
SA, Units
EU 28: IP: Industry excluding Construction
SA/WDA, 2010=100
As of 20 January 2016 For illustrative purposes only.
27
As of 20 January 2016 Sources: CEIC, Credit Suisse For illustrative purposes only.
Share of Global Industrial Production
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As of 20 January 2016 Sources: China National Bureau of Statistics/ Haver Analytics For illustrative purposes only.
China: Gross Domestic Product
% Change – Year to Year SA, Bil.Yuan
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Annual Growth Rate of China Real Exports
As of 20 January 2016 Sources: CEIC, Credit Suisse For illustrative purposes only.
30
As of 20 January 2016 Sources: BIS, CEIC, Credit Suisse, PBoC For illustrative purposes only.
China non-financial debt to GDP
(excluding central government)
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1 2 3 4 5 6 7 8 9 10 11 1 2 3 4 5 6 7 8 9 10 11
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17
U.S. Unemployment Rate
U.S.: Housing Starts
SA, Thous. Units
U.S.: Industrial Production: Motor Vehicles and Parts
SA, 2012 = 100
U.S. Unemployment Rate
Source: Haver Analytics
As of 20 January 2016 For illustrative purposes only.
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As of 12 January 2016 Source: U.S. Department of Commerce For illustrative purposes only.
0% 1% 2% 3% 4% 5% 6%
0% 1% 2% 3% 4% 5% 6%
07 08 09 10 11 12 13 14 15 16 17
Source: U.S. Dept. of Commerce
Real Wage & Salary Income
(y/y change in 3-month averages)
Real Wage and Salary Income
(y/y change in 3-month averages)
33
32% 34% 36% 38% 40% 42% 44% 46% 48% 50% 52% 54% 56% 58% 60% 62% 64% 66% 68% 32% 34% 36% 38% 40% 42% 44% 46% 48% 50% 52% 54% 56% 58% 60% 62% 64% 66% 68%
07 08 09 10 11 12 13 14 15 16 17
US ISM Surveys
Non-Manufacturing Manufacturing
U.S. ISM Surveys
As of 12 January 2016 Sources: Haver Analytics, Institute for Supply Management Surveys, Stone Harbor Investment Partners LP For illustrative purposes only.
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0% 25% 50% 75% 100% 125% 150% 175% 200% 225% 250% 275% 300% 325% 350% 375% 0% 25% 50% 75% 100% 125% 150% 175% 200% 225% 250% 275% 300% 325% 350% 375% 53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01 04 07 10 13 Financial Debt Non-Financial
U.S. Domestic Debt Outstanding
(as a Percentage of GDP)
As of 20 January 2016 Sources: Federal Reserve, Stone Harbor Investment Partners LP For illustrative purposes only.
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U.S. Oil Rig Count vs. Oil Output, January 2010 to January 2016
Rigs Millions of Barrels/day Oil Output (bpd, left scale) Oil Rigs (right scale)
As of 20 January 2016 Sources: Baker- Hughes, EIA For illustrative purposes only.
38
U.S.: Industrial Production: Mining
SA, 2012=100
Canada: Industrial Production: Mining and Oil & Gas Extraction
SA, 2007=100
Brazil: Industrial Production: Mineral Extraction
SA, 2012=100
As of 20 January 2016 For illustrative purposes only.
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Revenue Growth
(%yoy) S&P500 S&P500x
As of 20 January 2016 Source: Goldman Sachs Note: ‘S&P500x’ is the S&P500 ex commodity stocks For illustrative purposes only.
42
U.S.: Nonfarm Business Sector: Output Per Hour of All Persons
SA, 2009=100
U.K.: Productivity: Output per Employed Person
SA, 2010=100
EU 28: Labor Productivity per Person Employed
SA, 2010=100
As of 20 January 2016 For illustrative purposes only.
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As of 31 December 2015 The information above is intended to illustrate how a Multi-Asset Credit portfolio may be constructed at various points in a market cycle. There is no assurance that target allocations would have been
Duration (years) 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Treasuries/Cash IG Corporates Securitized Bank Loans EMD - Corporate U.S. High Yield European High Yield EMD - Hard EMD - Local 2.00 2.50 3.00 3.50 4.00
Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15
Indices referred to herein are broad-based securities market indices. Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment
Benchmark Definitions: The Bank of America Securities Leveraged Loan Index (BASLLI) is a market-weighted index that plots the total return (comprised of LIBOR, credit spreads, and price movements) of floating rate investments in the secondary loan market. The S&P/LSTA Leveraged Loan Index (LLI) reflects the market-weighted performance of U.S. dollar-denominated institutional leveraged loan portfolios. Facilities are eligible for inclusion in the index if they are U.S. dollar-denominated term loans from syndicated credits and meet the following criteria at issuance: minimum initial term of one year; minimum initial spread of LIBOR+125; minimum initial size of $50million. The index primarily consists of senior secured facilities; however, it does include second lien and unsecured loans if they are broadly held by CLO’s and other traditional loan accounts. Loans are retired when there is no bid posted on the facility for at least 12 successive weeks or when the loan is repaid The Barclays Mortgage-Backed Securities (MBS) Index covers the mortgage-backed pass-through securities of Ginnie Mae, Fannie Mae, and Freddie Mac. The MBS is formed by grouping the universe of over 1,000,000 individual fixed rate MBS pools into approx. 5,500 generic aggregates. Each aggregate is a proxy for the outstanding pools for a given agency, program, issue year, and coupon. The index maturity and liquidity criteria are then applied to these aggregates to determine which qualify for inclusion in the index. The Barclays EM USD Aggregate Index is a flagship hard currency Emerging Markets debt benchmark that includes USD denominated debt from sovereign, quasi-sovereign, and corporate EM issuers. The index is broad- based in its coverage by sector and by country, and reflects the evolution of EM benchmarking from traditional sovereign bond indices to Aggregate-style benchmarks that are more representative of the EM investment choice set. The Barclays Global Aggregate Bond Index provides a broad-based measure of the global investment grade fixed-rate debt markets. It is comprised of the U.S. Aggregate, PanEuropean Aggregate, and the Asian-Pacific Aggregate Indexes. It also includes a wide range of standard and customized subindices by liquidity constraint, sector, quality and maturity. The Barclays High Yield Index covers the universe of fixed rate, non-investment grade debt, and includes both corporate and non-corporate sectors. The index includes both corporate and non-corporate sectors. The corporate sectors are Industrial, Utility, and Finance, which include both U.S. and non-U.S. corporations. The Barclays Treasury Index tracks the obligations of the U.S. Treasury with a remaining maturity of one year or more. The Barclays Corporate Index is a sub index of the U.S. Credit Index. It includes publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity, and quality
The Barclays U.S. Aggregate Bond Index represents securities that are SEC-registered, taxable, and dollar denominated. The index covers the U.S. investment grade fixed rate bond market, with index components for government and corporate securities, mortgage pass-through securities, and asset-backed securities. These major sectors are subdivided into more specific indices that are calculated and reported on a regular basis. The Barclays U.S. Credit Index tracks publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity, and quality requirements. Qualifying bonds must be SEC- registered. The Barclays U.S. Gov/Credit Index includes the U.S Government Index and the U.S. Credit Index. The Government Index includes treasuries and agencies; and the Credit Index includes publicly issued U.S. corporate and foreign debentures and secured notes that meet specified maturity, liquidity, and quality requirements. The Barclays U.S. Securitized Index is the largest component of the U.S. Aggregate Index and consists of the U.S. Mortgage-Backed Securities Index, the fixed rate Asset-Backed Securities Index, and the ERISA eligible Commercial Mortgage-Backed Securities Index. The Barclays U.S. Corporate Investment Grade Index is a sub index of the U.S. Aggregate Index. It includes publicly issued U.S. corporate and specified foreign debentures and secured notes that meet the specified maturity, liquidity, and quality requirements. To qualify, bonds must be SEC-registered. The BofA Merrill Lynch USD 3-Month Libor Constant Maturity Index tracks the performance of a synthetic asset paying Libor to a stated maturity. The index is based on the assumed purchase at par of a synthetic instrument having exactly its stated maturity and with a coupon equal to that day’s fixing rate. That issue is assumed to be sold the following business day (priced at a yield equal to the current day fixing rate) and rolled into a new instrument. The BofA Merrill Lynch U.S. High Yield Master II Index (H0A0) tracks the performance of U.S. dollar denominated below investment grade corporate debt publicly issued in the U.S. domestic market. Qualifying bonds must at least one year remaining term to final maturity, a fixed coupon schedule and a minimum amount outstanding of $100 million. Original issue zero coupon bonds, “global” securities, 144a securities, corporate pay-in-kind, and toggle notes qualify for inclusion.
Indices referred to herein are broad-based securities market indices. Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment
Benchmark Definitions: The BofA Merrill Lynch European Currency Non-Financial High Yield 2% Constrained Index (HPIC) contains all non-Financial securities in The BofA Merrill Lynch European Currency High Yield Index but caps issuer exposure at 2%. Index constituents are capitalization-weighted, based on their current amount outstanding, provided the total allocation to an individual issuer does not exceed 2%.The Credit Suisse High Yield Index is designed to mirror the investable universe of the $US-denominated high yield debt market. The index has an inception date of 1/1/1986. The index is calculated on the NYSE calendar and is available as of 20:00 EST time. The BofA Merrill Lynch U.S. High Yield Constrained Index(HUC0) tracks the performance of below investment grade USD-denominated corporate bonds publicly issued in the U.S. domestic market, including 144a issues and “Yankee” bonds that are domiciled in countries with an investment grade foreign currency long-term debt rating. Bonds must have at least one year remaining term to maturity, a fixed coupon schedule, and a minimum amount outstanding of USD 100 million. Deferred interest bonds that are not yet accruing a coupon and pay-in-kind bonds are included. The Credit Suisse Leveraged Loan Index is designed to mirror the investable universe of the $US-denominated leveraged loan market. Loan facilities must be rated “5B” or lower, only fully-funded term loan facilities are included, the tenor must be at least one year and Issuers must be domiciled in developed countries; issuers from developing countries are excluded. The Chicago Board Options Exchange Volatility Index (VIX Index) reflects an estimate of future equity market volatility based on the prices of S&P 500 puts and calls. The Gold Spot Cash Index represents the current market price at which Gold is bought or sold for immediate payment and delivery. The J.P. Morgan CEMBI Broad Diversified limits the current face amount allocations of the bonds in the CEMBI Broad by constraining the total face amount outstanding for countries with larger debt stocks. Qualifying corporate bonds have a face amount greater than USD 300 million, maturity greater than 5 years, verifiable prices and cash flows, and from countries within Asia ex-Japan, Latin America, Eastern Europe, Middle East, and Africa. The J.P. Morgan CEMBI Broad Diversified Investment Grade was created in response to investor demand for IG USD denominated emerging market corporate bonds. This index provides a diversification scheme allowing for a more evenly distributed weighting among countries, decreasing larger countries and increasing the smaller ones. It also filters by a high credit rating, allowing investors to limit their exposure to IG corporate issues. Only bonds issued by corporate entities with IG ratings from S&P or Moody's are eligible in the index. The J.P. Morgan EMBI Global Index (EMBIG) tracks total returns for U.S. dollar-denominated debt instruments issued by emerging markets sovereign and quasi-sovereign entities: Brady bonds, loans, and Eurobonds. The changes in the benchmark more accurately reflect the investment strategy. The J.P. Morgan EMBI Global Diversified (EMBI Global Diversified) limits the weights of those index countries with larger debt stocks by only including specified portions of these countries’ eligible current face amounts
The J.P. Morgan GBI-EM Global Diversified 15% Cap consists of regularly traded, liquid fixed-rate, domestic currency government bonds to which international investors can gain exposure. However, the Investment Grade component of the index is capped at 15%. At rebalance, bonds must have at least 13 months remaining until maturity. Countries must be rated IG by S&P, Moody's and Fitch The J.P. Morgan Global High Yield Index is designed to mirror the investable universe of the U.S. dollar high yield corporate debt market, including domestic and international issues. The minimum amount outstanding for issues to be added to the index is $75mm (par value). The index contains fixed rate corporate debt securities, PIKS, step-ups, and deferred coupon bonds. The London Metal Exchange Copper Cash Index reflects the cash price from the end of LME day final evening evaluations. The MSCI World index captures large and mid-cap representation across 23 Developed Markets. Index constituents cover approximately 85% of the free float- adjusted market capitalization in each country. The index is a broad global equity benchmark without emerging markets exposure.
Indices referred to herein are broad-based securities market indices. Broad-based securities indices are unmanaged and are not subject to fees and expenses typically associated with managed accounts or investment
Benchmark Definitions: The S&P/LSTA Leveraged Loan Index (LLI) reflects the market-weighted performance of U.S. dollar-denominated institutional leveraged loan portfolios. Facilities are eligible for inclusion in the index if they are U.S. dollar- denominated term loans from syndicated credits and meet the following criteria at issuance: minimum initial term of one year; minimum initial spread of LIBOR+125; minimum initial size of $50 million. The index primarily consists of senior secured facilities; however, it does include second lien and unsecured loans if they are broadly held by CLO’s and other traditional loan accounts. Loans are retired when there is no bid posted on the facility for at least 12 successive weeks or when the loan is repaid. The S&P 500 is an index of 500 stocks chosen for market size, liquidity and industry grouping, among other factors. The S&P 500 is designed to be a leading indicator of U.S. equities and is meant to reflect the risk/return characteristics of the large cap universe. West Texas Intermediate (WTI) refers to oil extracted from wells in the U.S. and sent via pipeline to Cushing, Oklahoma. WTI is currently the main benchmark for oil consumed in the United States and is also relevant in the United Arab Emirates, Oman and markets across Asia. WTI crude contracts are sold chiefly on the New York Mercantile Exchange, or NYMEX.
This material is solely for informational purposes and shall not constitute an offer to sell or the solicitation to buy securities. The opinions expressed herein represent the current, good faith views of the author(s) at the time of publication and are provided for limited purposes, are not definitive investment advice, and should not be relied on as such. The information presented in this article has been developed internally and/or obtained from sources believed to be reliable; however, Stone Harbor Investment Partners, LP (“Stone Harbor”) does not guarantee the accuracy, adequacy or completeness of such information. Predictions, opinions, and other information contained in this article are subject to change continually and without notice of any kind and may no longer be true after the date indicated. Any forward-looking statements speak only as of the date they are made, and Stone Harbor assumes no duty to and does not undertake to update forward-looking statements. Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Actual results could differ materially from those anticipated in forward-looking statements. This material is directed exclusively at investment
The value of investments and income from them can fluctuate and are not guaranteed. Investors may not get back the amount invested. Rates of exchange may cause the value
case of a higher volatility strategy and the value of an investment may fall suddenly and substantially. Any objective or target will be treated as a target only and should not be considered as an assurance or guarantee of performance of the strategy or any part of it. . Investment services are provided by Stone Harbor Investment Partners LP and Stone Harbor Investment Partners (UK), LLP. Stone Harbor Investment Partners LP is a SEC- registered investment adviser. Stone Harbor Investment Partners (UK), LLP, a limited liability partnership, is authorised and regulated by the Financial Conduct Authority. Issued by Stone Harbor Investment Partners (UK), LLP. Authorised and regulated in the UK by the Financial Conduct Authority. Registered in England and Wales, No. OC317789. Registered office: 48 Dover Street, London, W1S 4FF. Past performance does not guarantee future results. The performance data quoted represents past performance and current returns may be lower or higher.