Western Asset Variable Global High Yield Bd Ptf I · NASDAQ:QLMYIX
Western Asset Variable Global High Yield Bd Ptf I — Western Asset Management Company — Investor Presentation (January 2016)
23 slides from Western Asset Variable Global High Yield Bd Ptf I's investor presentation, Jan 7, 2016
Slide 1: Market and Strategy Update
Market and Strategy Update January 7, 2016 Ken Leech Chief Investment Officer 00
Slide 2: IMF – 2015 Growth Forecast
IMF – 2015 Growth Forecast World GDP vs. IMF World Economic Outlook (WEO) Estimates World GDP Apr 12 WEO Apr 13 WEO Oct 14 WEO Apr 15 WEO Oct 15 WEO 5.0 4.5 Percent 4.0 3.5 3.0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Source: IMF. As of Oct 15 IMF – 2015 Growth Forecast 5.0 Advanced Emerging Wor
Slide 3: Global Inflation
Global Inflation Global Inflation 18 16 14 12 10 Percent 8 Developed Markets 6 4 2 0 -2 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: IMF World Economic Outlook Nov 15 2
Slide 4: Commodities
Commodities Price Trends of Key Commodities in US Dollars Copper Iron Ore Gold Aluminum 10,000 200 1,800 2,700 175 2,500 9,000 1,600 150 2,300 8,000 125 1,400 2,100 7,000 100 75 1,900 6,000 1,200 50 1,700 5,000 25 1,000 1,500 2010 2011 2012 2013 2014 2015 2010 2011 2012 2013 2014 2015 2010 2011 2012
Slide 5: US Inflation
US Inflation US Inflation 6 5 Current Inflation² 4 Inflation Expectations¹ 3 Tighter labor market Improving US growth Improving inflation expectations 2 Percent Fed Forecast³ 1 0 Lower oil prices -1 Strong US dollar Weak global growth -2 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 20
Slide 6: Nominal GDP and Inflation
Nominal GDP and Inflation Inflation Is Driven By Excessive Growth in Nominal GDP 20 4-Quarter Average Growth Rates For... 16 Nominal GDP 12 Percent Per Year 8 4 0 Inflation as per GDP Deflator -4 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: Bureau of Economic Analysi
Slide 7: Nominal GDP Growth vs. Inflation
Nominal GDP and Inflation Nominal GDP Growth vs. Inflation 5.0 4-Quarter Average Growth Rates For... 4.5 4.0 Nominal GDP 3.5 3.0 Percent Per Year 2.5 2.0 1.5 Inflation as per GDP Deflator 1.0 0.5 0.0 2010 2011 2012 2013 2014 2015 Source: Bureau of Economic Analysis. As of 30 Sep 15 6
Slide 8: Will the Fed Make a Policy Mistake?
Will the Fed Make a Policy Mistake? December FOMC Statement: “In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal.” Minutes from the December FOMC Meeting: “In determining the size and timing o
Slide 9: Europe – Part of the Problem or the Solution?
Europe – Part of the Problem or the Solution? Is Monetary Policy Getting Traction? Loans to Households and Non-Financial Corporations US Eurozone Japan 12 10 8 Year-Over-Year Change (%) 6 4 2 0 -2 -4 -6 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Fed, ECB,
Slide 10: Eurozone Inflation
Eurozone Inflation Eurozone Inflation 5 4 Forward Inflation Eurozone Inflation Expectations* 3 2 Percent 1 0 -1 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Bloomberg. As of 31 Dec 15 *Euro 5 year-5 year inflation swap 9
Slide 11: Chinese Growth – Where to From Here?
Chinese Growth – Where to From Here? China Real GDP Growth 25 Export and Manufacturing Investment Balanced 20 Pre-Olympics Yuan SDR 15 Infrastructure inclusion Building Percent Stock market China's inclusion of WTO correction 10 $586 billion stimulus package 5 Yuan devaluation Yuan depreciation Star
Slide 12: China Slowdown Ripples on Commodities and EM FX
China Slowdown Ripples on Commodities and EM FX China Slowdown Ripples on Commodities and EM FX Manufacturing Investments (left) Iron Ore (left) EM FX¹ (right) 120 110 100 100 80 90 Feb 2011 = 100 Feb 2011 = 100 60 80 40 70 20 60 0 50 2011 2012 2013 2014 2015 ¹EM FX is represented by GBI-EM Global D
Slide 13: Emerging Markets: How Long Will the Beating Persist?
Emerging Markets How Long Will the Beating Persist? Spread Between Local Currency EM and DM Sovereign Yields 600 550 500 Basis Points 450 400 350 300 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: J.P. Morgan. As of 31 Dec 15 Difference Between J.P. Morgan Emerging Markets Currency Index¹ and
Slide 14: Excess Returns by Sector
Excess Returns by Sector Excess Returns 30 Jun 14 – 31 Dec 15 0 -0.34 -0.43 -2 -4 -3.47 Percent -6 -8 -10 -10.02 -12 US Mortgage-Backed US CMBS US Credit US High-Yield Securities Source: Barclays. As of 31 Dec 15 Past performance is not a guarantee of future results. 13
Slide 15: Corporate Bonds
Corporate Bonds US Corporate Bond Spreads 700 600 500 OAS (bps) 400 300 200 +165 bps 100 0 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: Barclays. As of 31 Dec 15 Default Rates, Investment-Grade Corporates 12 5-Year Default Rate Based on 30% Recovery Implied by Market
Slide 16: Investment-Grade Credit Spreads
Investment-Grade Credit Spreads Credit Spreads Wider: Large Dispersion Between Winners and Losers YTD Excess Investment-Grade Credit Spreads Returns 550 500 Metals & Mining -1555 bps 450 400 Oil Field Services -996 bps 350 OAS (bps) 300 Energy -801 bps 250 T1 Banks +272 bps 200 Cable Satellite -290
Slide 17: US High-Yield Spreads vs. Expected Default Rates
US High-Yield US High-Yield Spreads Appear to Provide a Significant Cushion vs. Expected Default Rates US High-Yield Default Rates vs. Spreads Moody's Default Moody's US Trailing 12-Month Barclays U.S. High-Yield Rate¹ (right) Default Rate Forecast² (right) Index Spread (left) 2000 20 1800 18 1600 1
Slide 18: Energy Sector: US Rig Cuts Outpace Rest of World
Energy Sector US Rig Cuts Outpace Rest of World Rig Count – US vs. Rest of World Rest of World US +100 +16 +56 +25 +36 +25 +0 +15 +3 -39 -31 -57 Rig Count, Monthly Change Since 31 Oct 14 -12 -77 -16 -63 -116 -8 -23 -16 -100 -219 -84 -22 -297 -276 -200 -173 -300 -47 -210 Rig Count Oct '14 Nov '15 Cha
Slide 19: US High-Yield Annual Returns
US High-Yield US High-Yield Has Had a Negative Return in Just 6 of the Past 30 Years, Each of Which Was Followed by a Strong Return Barclays U.S. High-Yield Index Annual Returns 70 58.2 60 50 46.2 40 29.0 30 Total Return (%) 19.2 20 17.4 15.717.1 15.1 15.8 12.5 11.412.8 11.1 11.8 10 7.4 5.0 5.3 5.0
Slide 20: MBS Sector
MBS Sector Consumer and Real Estate Fundamentals Remain at Historically Attractive Levels Retail (left) Office (left) Consumer Debt Mortgage Retail Growth (right) Office Growth (right) 14 16 10 12 14 8 Annual Effective Rent Growth (%) Supply as a % of Existing Inventory 12 6 Percent of Disposable In
Slide 21: Conclusion
Conclusion Global growth and inflation have moved lower, downside risks persist Accommodative monetary policy remains crucial for ongoing global recovery Interest rate normalization will proceed, but very slowly Spread sectors are expected to outperform government bonds 20
Slide 22: Questions & Answers
Questions & Answers Thank you. 21
Slide 23: Risk Disclosure
Risk Disclosure © Western Asset Management Company 2016. This publication is the property of Western Asset Management Company and is intended for the sole use of its clients, consultants, and other intended recipients. It should not be forwarded to any other person. Contents herein should be treated
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