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Give me a higher return The Signature Income & Growth story. Geof Marshall, CFA and Malcolm White, CFA. Finding income in a low yield world. Relative value in a traditional balanced asset mix. Forward earnings yield based on IBES 12-month forward S&P 500 earnings.

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give me a higher return the signature income growth story

Give me a higher returnThe Signature Income & Growth story

Geof Marshall, CFA and

Malcolm White, CFA

finding income in a low yield world
Finding income in a low yield world

Relative value in a traditional balanced asset mix

Forward earnings yield based on IBES 12-month forward S&P 500 earnings

income opportunities high yield bonds
Income opportunities – high-yield bonds

“Yield is a head start on outperformance”

Offset equity volatility Offset interest rate risk

High yield: 90% of the monthly return of stocks with 45% of the volatility

= 2x higher risk-adjusted returns

––High yield cumulative return –– S&P 500 cumulative return

high yield bonds
High-yield bonds

More to credit analysis than credit ratings:

high yield bonds1
High-yield bonds

More to credit analysis than credit ratings:

sears overview
Sears overview

More to credit analysis than credit ratings:

  • Retailing icon founded in 1893
  • 4,000 Retail Locations, #4Broadline retailer in the U.S.
  • Hedge fund ownership
  • Sears and Kmart combined in March 2005
  • Strategy remains adrift, financial results deteriorating
neiman marcus overview
Neiman Marcus overview

More to credit analysis than credit ratings:

  • Women’s luxury apparel retailer
  • 44 stores in the U.S. including Bergdorf Goodman in New York
  • 2005 private equity leveraged buyout
  • Luxury consumer is back
  • InCircle customer focus sets them apart
  • Store growth has resumed
four c s of credit analysis capacity to repay
Four C’s of credit analysis: Capacity to repay

Sears

  • 90% decline in EBITDA since ~2006
  • 18 quarters of negative same-store sales growth
  • $40 billion in sales, ~$400mm in capital expenditures
  • Canada no longer an ATM
  • Answer = asset sales

Neiman Marcus

  • EBITDA approaching pre-recession highs
  • Positive same-store sale growth trend since 2010
  • Sponsor dividend funded by cash on hand
  • Capital markets receptive to this company

Advantage: NMG

four c s of credit analysis character
Four C’s of credit analysis: Character

Sears

  • Revolving door management – new CEO has no previous retail experience
  • Asset stripping and self-dealing
  • Weak reporting standards and high executive turnover
  • Unreasonable shareholder activity

Neiman Marcus

  • New CEO, promoted from within
  • Depth and longevity to management team
  • Best-in-class private company disclosure
  • Reasonable shareholder activity

Advantage: NMG

four c s of credit analysis collateral
Four C’s of credit analysis: Collateral

Sears

  • Significant inventories
  • Material owned real estate assets
  • Valuable brands: Kenmore, Craftsman, DieHard
  • Land’s End
  • Sears Canada

Neiman Marcus

  • Small proportion of owned real estate
  • Merchandise inventory subject to fashion risk
  • Business model generates consistent cash flow
  • International markets remain untapped

Advantage: Tie

four c s of credit analysis covenants
Four C’s of credit analysis: Covenants

Sears

  • 2nd lien on inventory and accounts receivable with put right
  • Yard sale of real estate and brands continues
  • Introduction of additional secured debt probable
  • Unlimited restricted payments

Neiman Marcus

  • Most junior debt in capital structure
  • No security
  • Significant layering possible
  • ‘Covenant-lite’ capital structure
  • Restricted payments largely exhausted

Advantage: Tie

income opportunities high yield bonds2
Income opportunities: High-yield bonds

Price difference: bad business = volatility

––Nieman Marcus Bond –– Sears bond

Source: Bank of America

income opportunities high yield bonds3
Income opportunities: High-yield bonds

Performance difference: aiming for ‘boring’

Source: Bank of America

what happens when interest rates rise
What happens wheninterest rates rise?

High yield and U.S. investment grade bond return correlations to 5-year U.S. Treasuries (52 week trailing)

Source: Bank of America

what happens when interest rates rise1
What happens when interest rates rise?

High-yield bond returns during past federal funds rate tightening episodes (total returns/not annualized)

Source: UBS (Federal Reserve Board and Bureau of Economic Analysis)

Index data is Bank of America Merrill High Yield Master II Index in USD

ways to gain exposure to signature s high yield bond portfolio
Ways to gain exposure to Signature’s high-yield bond portfolio

Source: CI Investments, March 2012

ci signature diversified yield fund
CI Signature Diversified Yield Fund

*Inception November 2009

Source: Globefund

ci signature high income fund
CI Signature High Income Fund

*Inception December 1996

Source: Globefund

ci signature corporate bond fund
CI Signature Corporate Bond Fund

*Inception December 2001

Source: Globefund

facebook the largest country in the world
Facebook – the largest country in the world

Facebook users (in millions)

Source: Facebook; Graph by Ben Foster

powered by virtual cities of infrastructure
Powered by Virtual Cities of Infrastructure

What is 10PB; Source: Backblaze

malcolm white portfolio manager
Malcolm White, CFAVice-President, Portfolio Management and Portfolio Manager with Signature Global Advisors of CI Investments Inc., has over 16 years of investment experience in a career that included analytic roles at Merrill Lynch Canada and First Marathon Securities (now National Bank Financial).

Malcolm specializes in the technology, media and telecommunications sectors. He was selected as one of Canada’s Top 50 Portfolio Managers and global industry expert in recent Brendan Wood International surveys.

Malcolm White – Portfolio Manager
disclaimer
Disclaimer

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Unless otherwise indicated and except for returns for periods less than one year, the indicated rates of return are the historical annual compounded total returns including changes in security value. All performance data assume reinvestment of all distributions or dividends and do not take into account sales, redemption, distribution or optional charges or income taxes payable by any securityholder that would have reduced returns. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. ®CI Investments and the CI Investments design are registered trademarks of CI Investments Inc.