European Corporate Bond Fund

Jun
2015
European Corporate Bond Fund
30 June 2015
The fund aims to provide long term growth from capital gains and the reinvestment of income generated by
investing predominantly in European investment grade bonds. The fund is actively managed by our
investment teams who may invest in a wide range of bonds (e.g. corporate bonds including high yield
bonds, government backed securities, overseas bonds, index-linked bonds, floating rate notes (FRNs) and
asset backed securities (ABSs) and/or money market instruments) in order to take advantage of
opportunities they have identified. Non euro denominated assets held in the fund will generally be hedged
back to euros.
The value of investments within the fund can fall as well as rise and is not guaranteed - you may get back
less than you pay in. The fund may use derivatives for the purposes of efficient portfolio management,
reduction of risk or to meet its investment objective if this is permitted and appropriate. The value of
overseas assets held in the fund may rise and fall as a result of exchange rate fluctuations.
Fund Manager
Launch Date
Morningstar Rating
Fund Currency
Benchmark
Current Fund Size
Craig MacDonald
25 Sep 2003
****
EUR
iBoxx Euro Corporate All Stocks Index
€2997.7m
Information Ratio
Tracking Error
Volatility
Yield to Maturity
2.61
0.38
3.19%
2.0%
Modified Duration
5.1
SICAV Fund
Bond Fund
Monthly
This document is intended for use by individuals who are familiar with investment terminology. Please contact your financial adviser if you need an
explanation of the terms used. Please note that the breakdowns below do not take into account the economic exposure created by derivative
positions.
For a full explanation of specific risks and the overall risk profile of this fund and the shareclasses within it, please refer to the Key Investor
Information Documents and Prospectus which are available on our website – www.standardlifeinvestments.com
Fund Information *
Composition by Maturity
Composition by Credit Rating
Rating
Fund %
Rating
Fund %
AAA
1.2
BB
8.0
AA
6.5
B
0.1
N/R
0.3
A
33.4
BBB
50.5
Composition by Sector
46.9
42.8
7.7
1.8
0.5
0.3
Top Ten Holdings
Fund %
Corporates
Financials
Sovereigns
Not Classified
Collateralised
Fund %
0-5YRS
5-10YRS
10-15YRS
15-20YRS
20-25YRS
25+YRS
52.6
45.9
0.9
0.4
0.2
Bonds
Fund %
General Electrical 0.8% 2022
JPMorgan Chase 2.625% 2021
Bank of Ireland 2% 2017
Hutchison Whampoa 4.75% 2016
DnB NOR Bank 4.375% 2021
Bharti Airtel 4% 2018
Hutchison Whampoa 1.375% 2021
UBS 4.75% 2026
Coventry Building Society 2.25% 2017
Royal Bank of Scotland 5.375% 2019
0.7
0.6
0.6
0.6
0.6
0.6
0.5
0.5
0.5
0.5
Assets in top ten holdings
5.7
Fund Performance *
Price Indexed
135
Performance has been calculated over
the stated period on the share price
performance basis, based on the
institutional shareclass and net of fees.
For your relevant charges please contact
your Standard Life Investments Sales
Representative.
130
125
120
Source: Standard Life Investments
(Fund) and Thomson Datastream
(Benchmark)
115
110
105
100
European Corporate
Bond
Jun-15
Dec-14
Jun-14
Dec-13
Jun-13
Dec-12
Jun-12
Dec-11
Jun-11
Dec-10
Jun-10
95
iBoxx Euro Corporate All
Stocks Index
Cumulative Performance
Source: Standard Life Investments (Fund) and Thomson Datastream (Benchmark)
YTD (%)
1 month (%)
3 months (%)
6 months (%)
1 year (%)
Retail Fund Performance
-1.5
-2.2
-3.2
-1.5
1.1
Institutional Fund Performance
-1.2
-2.1
-3.0
-1.2
1.7
iBoxx Euro Corporate All Stocks Index
-1.6
-2.0
-2.9
-1.6
1.6
3 years (%)
5 years (%)
Since launch (%)
Retail Fund Performance
16.7
25.8
59.2
Institutional Fund Performance
18.6
29.2
72.7
iBoxx Euro Corporate All Stocks Index
16.9
27.2
66.1
Note: Past Performance is not a guide to future performance. The price of shares and the income from them may go down as well as up and
cannot be guaranteed; an investor may receive back less than their original investment.
For full details of the fund's objective, policy, investment and borrowing powers and details of the risks investors need to be aware of, please
refer to the prospectus.
Definitions
Information Ratio - the active return of a portfolio divided by the tracking error.
Tracking Error - the standard deviation of the difference between portfolio and index returns ex-post 3yr.
Volatility - the annualised standard deviation of monthly total returns over the last 36 months.
Yield to Maturity - gives an indication of the total expected return from a bond if it is held to maturity. It reflects both the interest payments made
to the bondholder and any capital gain or loss at maturity. It is based on a snapshot of the portfolio on specified date. It does not include any
impact from charges.
Modified Duration - gives an indication of a bond's sensitivity to a change in interest rates. It is based on a snapshot of the portfolio on specified
date. It does not include any impact from charges.
Not Classified (N/C) may include bonds which do not fall into the specified categories and 'Cash and Other'.
Not Rated (N/R) may include bonds which do not have a rating under iBoxx classification (such bonds may still be rated by S&P and/or Moodys)
and 'Cash and Other'.
Cash and Other - may include bank and building society deposits, other money market instruments such as Certificates of Deposits (CDs),
Floating Rate Notes (FRNs) including Asset Backed Securities (ABSs), Money Market Funds and allowances for tax, dividends and interest due if
appropriate.
Investment Review and Outlook
Market Review
June was a difficult month for euro
credit as rates and spread increases
resulted in the worst total return for the
asset class since November 2011.
Rising rates volatility at the beginning
of the month and the escalation of the
Greek debt crisis, caused credit
spreads to widen, which led to
negative credit returns. Putting this
into perspective, the spread widening
in euro credit was larger than the
correction around the 2013 taper
tantrum.
With Greece as the source of
uncertainty, peripheral financials and
corporates underperformed, while
financials underperformed corporates
in general. Within single issuers from
southern Europe, Telefonica, EDP and
Enel were among the worst performers,
alongside banks such as UniCredit and
Intesa Sanpaolo. Higher risk sectors
also underperformed, in particular,
subordinated insurance debt and
corporate hybrids. In terms of maturity,
the longer-end of the credit market
underperformed short-dated debt.
With this shift in sentiment, supply
dropped by 50% compared to the
previous month (to €28bn).
too far. Among others, we bought
corporate hybrid debt from Deutsche
Annington and lower tier two bonds of
UBS and Rabobank. We also closed our
underweight exposure to Portuguese
utility EDP and added a new position in
lower tier two bonds of highly rated
Zürcher Kantonalbank.
We selectively participated in the
primary market, adding debt from
Motability Group, Energy Transfer
Partners and Heinz. Against these
purchases, we reduced some
expensively trading bonds of BMW and
Verizon.
Performance
Given the rise in yields and spreads
the Fund delivered a negative return
and performed in line with the
benchmark index.
Strong stock selection helped to offset
the fact that the Fund was moderately
long credit risk in a widening market.
Our small long duration and curve
positioning also detracted from
returns. However, our underweight
exposure to senior Eurozone banks
such as Credit Agricole has performed
well, as has our overweight exposure
to Lloyds and Bank of America debt.
Activity
Given the sizable correction in the
market and our more defensive
positioning since the end of
February/beginning of March, we
decided to slowly increase the risk
profile of the Fund by switching out of
bunds and cash and adding to stock
picks which we believe have sold-off
Within corporates, our conviction
holding in Irish utility ESB performed
well, as did our holding of non-rated
luxury goods manufacturer Christian
Dior. Despite this, our conviction
higher-risk holdings in subordinated
debt from Allianz, Aviva, and UBS, as
well corporate hybrids from Orange,
Dangas and GDF Suez have cost
relative performance. Holding German
bunds in a weak market environment
was positive for relative performance.
Outlook & Strategy
Greece remains the focal point of
markets in the very short-term, as the
stand-off between the country and its
creditors goes into its final round. The
market consensus has now moved
towards a ‘Grexit’. The outcome is hard
to predict at this point in time, but we
think that the contagion in a worst
case scenario (Grexit) should be
limited. Greece represents less than
2% of Eurozone GDP, European banks
have reduced their exposure materially
since 2010 and most Greek
government debt is held by public
institutions. We also believe that the
ECB will “do whatever it takes” to fight
contagion spreading to Italy, Spain and
Portugal, which are on a different path
economically and structurally.
The recent drop in oil price and strong
technicals in underlying rates (negative
net issuance for bunds expected in July
and August) should reduce some of
the volatility. Consensus has formed
around a US rate hike in the second
half of 2015, so this is less likely to
cause market disruption. We think the
speed of additional hikes is what
matters most to risk markets. Given the
weaker US growth data, the path of
rate normalization has just been
pushed out further. Valuations are now
more attractive, so we are more
constructive on the market and seek
opportunities in segments we like and
that have underperformed in this
correction.
Other Fund Information
Retail Acc
STPECBA LX
LU0177497491
A0MRSB
Bloomberg
ISIN
WKN
Domicile
Custodian Name
Auditor Name
Retail Dist
STECBAD LX
LU0277136965
A0PCZZ
Institutional Acc
STPECBD LX
LU0177497814
A0MRSC
Institutional Dist
STECBDD LX
LU0455263052
A0YBUL
Luxembourg
The Bank of New York Mellon (Luxembourg) S.A., 2-4 Rue Eugene Ruppert, L-2453 Luxembourg,
Grand Duchy of Luxembourg
PricewaterhouseCoopers S.à r.l., Reviseur d'entreprises 400, route d'Esch, L-1014 Luxembourg,
Grand Duchy of Luxembourg
Reporting Dates
Interim
30 Jun
Annual
31 Dec
Settlement Time
Email
Telephone
Share Price Calculation Time
Dealing Cut Off Time
T+3
[email protected]
+352 24 525 716
15:00 (Luxembourg time)
13:00 (Luxembourg time)
Currency
EUR
EUR
EUR
*Any data contained herein which is attributed to a third party ("Third Party Data") is the property of (a) third party supplier(s) (the “Owner”) and is
licensed for use by Standard Life**. Third Party Data may not be copied or distributed. Third Party Data is provided “as is” and is not warranted to be
accurate, complete or timely. To the extent permitted by applicable law, none of the Owner, Standard Life** or any other third party (including any
third party involved in providing and/or compiling Third Party Data) shall have any liability for Third Party Data or for any use made of Third Party Data.
Past performance is no guarantee of future results. Neither the Owner nor any other third party sponsors, endorses or promotes the fund or product to
which Third Party Data relates.
**Standard Life means the relevant member of the Standard Life group, being Standard Life plc together with its subsidiaries, subsidiary undertakings
and associated companies (whether direct or indirect) from time to time.
“FTSE®”, "FT-SE®", "Footsie®", [“FTSE4Good®” and “techMARK] are trade marks jointly owned by the London Stock Exchange Plc and The Financial
Times Limited and are used by FTSE International Limited (“FTSE”) under licence. [“All-World®”, “All- Share®” and “All-Small®” are trade marks of
FTSE.]
The Fund is not in any way sponsored, endorsed, sold or promoted by FTSE International Limited (“FTSE”), by the London Stock Exchange Plc (the
“Exchange”), Euronext N.V. (“Euronext”), The Financial Times Limited (“FT”), European Public Real Estate Association (“EPRA”) or the National
Association of Real Estate Investment Trusts (“NAREIT”) (together the “Licensor Parties”) and none of the Licensor Parties make any warranty or
representation whatsoever, expressly or impliedly, either as to the results to be obtained from the use of the FTSE EPRA NAREIT Developed Index (the
“Index”) and/or the figure at which the said Index stands at any particular time on any particular day or otherwise. The Index is compiled and
calculated by FTSE. However, none of the Licensor Parties shall be liable (whether in negligence or otherwise) to any person for any error in the Index
and none of the Licensor Parties shall be under any obligation to advise any person of any error therein.
“FTSE®” is a trade mark of the Exchange and the FT, “NAREIT®” is a trade mark of the National Association of Real Estate Investment Trusts and
“EPRA®” is a trade mark of EPRA and all are used by FTSE under licence.”
Additional Information for Switzerland : The prospectus, the key investor information documents, the articles of incorporation, the annual and semiannual report in German, and further information can be obtained free of charge from the representative in Switzerland: Carnegie Fund Services S.A.,
11, rue du Général-Dufour, CH-1204 Geneva, Switzerland, web: www.carnegie-fund-services.ch. The Swiss paying agent is: Banque Cantonale de
Genève, 17, quai de l’Ile, CH-1204 Geneva. The last share prices can be found on www.fundinfo.com.
To find out more about our fund range, visit our website or alternatively speak to your
usual contact at Standard Life Investments.
www.standardlifeinvestments.com
Standard Life Investments Limited is registered in Scotland (SC123321) at 1 George Street, Edinburgh EH2 2LL.
Standard Life Investments Limited is authorised and regulated by the Financial Conduct Authority.
Standard Life Investments Global SICAV is an umbrella type investment company with variable capital registered in Luxembourg (no. B78797) at 2-4, rue Eugéne Ruppert,
L-2453 Luxembourg, Grand Duchy of Luxembourg.
Calls may be monitored and/or recorded to protect both you and us and help with our training.
www.standardlifeinvestments.com
© 2015 Standard Life
201507161017 INVSCV63 0615 SQ_EUR

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