Give me a higher return
The Signature Income &
Growth story
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
“Yield is a head start on outperformance”
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
Offset equity volatility
Offset interest rate risk
High-yield bonds
More to credit analysis than credit ratings:
High-yield bonds
More to credit analysis than credit ratings:
Sears overview
More to credit analysis than credit ratings:
• Retailing icon founded in 1893
• 4,000 Retail Locations, #4
Broadline retailer in the U.S.
• Hedge fund ownership
• Sears and Kmart combined in
March 2005
• Strategy remains adrift, financial
results deteriorating
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
Income opportunities:
High-yield bonds
Bond comparison
Call schedule
Structure
Credit ratings at
time of issue
Credit ratings
now
Sears Holding <SHLF>
Neiman Marcus <NMG>
6.625% due 10/15/2018
10.375% due 10/15/2015
Non-callable
With 30 days notice at 103.458
or at 101.729 beginning 10/15/12
Senior secured
Senior subordinated
Ba1 / BB+
(September 2010)
B3 / B(September 2005)
B2 / B
(Negative outlook both)
Caa1 / B(both Stable)
Four C’s of credit analysis:
Capacity to repay
Sears
Neiman Marcus
• 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
• EBITDA approaching prerecession 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
Sears
Neiman Marcus
• Revolving door
• New CEO, promoted from
management – new CEO
within
has no previous retail
• Depth and longevity to
experience
management team
• Asset stripping and
• Best-in-class private
self-dealing
company disclosure
• Weak reporting standards • Reasonable shareholder
and high executive
activity
turnover
• Unreasonable shareholder
activity
Advantage: NMG
Four C’s of credit analysis:
Collateral
Sears
Neiman Marcus
• Significant inventories
• Material owned real
estate assets
• Valuable brands:
Kenmore, Craftsman,
DieHard
• Land’s End
• Sears Canada
• 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
Sears
Neiman Marcus
• 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
• 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 bonds
Price difference: bad business = volatility
110
105
100
95
90
85
80
75
–– Nieman Marcus Bond –– Sears bond
70
Oct- Nov- Dec- Jan- Feb- Mar- Apr- May- Jun- Jul- Aug- Sep- Oct- Nov- Dec- Jan- Feb- Mar- Apr10 10 10 11 11
11 11 11
11 11 11
11 11 11
11 12 12 12 12
Source: Bank of America
Income opportunities:
High-yield bonds
Performance difference: aiming for ‘boring’
Value of $10,000 invested
SHLD
NMG
$12,000
$11,000
$10,000
$9,000
Cumulative performance
since September 2010
Source: Bank of America
Apr-12
Mar-12
Feb-12
Jan-12
Dec-11
Nov-11
Oct-11
Sep-11
Aug-11
Jul-11
Jun-11
May-11
Apr-11
Mar-11
Feb-11
Jan-11
Dec-10
Nov-10
Oct-10
Sep-10
$8,000
SHLD6.625%
NMG10.375%
-1.4%
17.5%
What happens when
interest rates rise?
High yield and U.S. investment grade bond return
correlations to 5-year U.S. Treasuries (52 week trailing)
1.0
0.8
0.6
0.4
0.2
0.0
-0.2
-0.4
-0.6
2000
2002
2004
2006
U.S. Investment Grade (Total Returns)
Source: Bank of America
2008
2010
U.S. High Yield (Total Returns)
2012
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
Fund name
Exposure to high-yield
bond portfolio (%)
Signature High Yield Bond Fund
100%
Signature Corporate Bond Fund
59%
Signature Diversified Yield Fund
47%
Signature High Income Fund
35%
Select Income Advantage Managed CC
22%
Signature Income & Growth Fund
17%
Source: CI Investments, March 2012
CI Signature Diversified Yield Fund
Signature Diversified Yield Fund
Quartile
*Inception November 2009
Source: Globefund
YTD
1 Year
2 Year
Since inception*
5.1%
1.9%
6.2%
6.1%
1
2
1
n/a
CI Signature High Income Fund
Signature High Income Fund
Quartile
*Inception December 1996
Source: Globefund
1 Year
3 Year
5 Year
10 Year
Since inception*
3.7%
18.1%
4.5%
9.2%
9.7%
1
1
1
1
N/A
CI Signature Corporate Bond Fund
Signature Corporate Bond Fund
Quartile
*Inception December 2001
Source: Globefund
1 Year
3 Year
5 Year
10 Year
Since inception*
5.3%
11.6%
5.1%
4.7%
4.5%
2
3
2
3
N/A
The Hype was Real – Just The
Timing was Wrong
Source: Gartner, Bloomberg
More Devices than People
Source: Intel
Facebook – the largest country
in the world
Facebook users
(in millions)
Source: Facebook; Graph by Ben Foster
Facebook – we know where you live
& who you know
Source: Facebook
More data than the world
has ever seen
Source: Passive Pundits
Powered by Virtual Cities of
Infrastructure
What is 10PB; Source: Backblaze
Yes, they do make money …
Source: Google
… And the possibilities
are unthinkable
Source: IBM
Malcolm White – Portfolio Manager
Malcolm White, CFA
Vice-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.
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.
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Investments and the CI Investments design are registered trademarks of CI Investments Inc.