barclays capital
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Barclays Capital ResearchBest Investable Ideas
Global Research in action
BARCLAYS CAPITAL FUND SOLUTIONS March 2011
For institutional and professional investors only. For information only. Not for further distribution or distribution to retail investorsThis document contains limited information about the strategy. Further details are available on request.
For institutional and professional investors only. For information only. Not for further distribution or distribution to retail investors
2
Contents
• Macro Overview
• Research Best Ideas
• Stimulus by US, UK and EU Central Banks
• Underestimation of corporate earnings and cash
• Expectation of growth in corporate CAPEX
• Overblown fears of UK re-entering recession
• European Dividend Futures pricing in excessively negative view
• RADAR Overview
• RADAR fund positioning and performance
• Questions?
• Important Information
Macro Overview
4For institutional and professional investors only. For information only.
Not for further distribution or distribution to retail investors
Macro Overview
Barclays Capital Research - Tactical Asset Allocation Team - global investment views
Risky assets rally is set to continue over the next quarter, LSAP (Long-term Strategic Asset Purchase) is likely to benefit equities over other asset classes in the coming months
Credit should continue to outperform sovereign debt although absolute returns are likely to be limited
We favour developed market equities, both US and European stocks, in particular, cyclical sectors that can benefit from reflationary pressures
Stay long industrials and technology in the US, basic resources and mining stocks in Europe
The outlook for emerging market assets remains strong. However, volatility may remain high given the potential for geo-political and monetary tightening fears
Prefer to gain exposure to emerging markets via export-oriented corporates in developed markets
European dividend futures remain cheap – still discounting double digit drop in earnings over the next two years
Source: Barclays Capital Research, Asset Allocation, “Equities are Back”, December 2010 and Global Outlook, December 2010
Research Best Ideas
6For institutional and professional investors only. For information only.
Not for further distribution or distribution to retail investors
Stimulus by US, UK and EU Central Banks
Don’t fight the reflation trade
The economic recovery is on track and growth is surprising on the upside
Equities in particular expected to outperform
Governments bonds expected to be under pressure
However, the reflation trade may not last long, and investors should position for continued volatility and the possibility of sharp reversals
Better growth, combined with easy and easier monetary policy, provides a very favourable backdrop for risky assets
RADAR
Equity long exposure of around 70% across US, EU
and Asian markets
0% in G10 Government Bonds
Source: Barclays Capital Research, Global Outlook, December 2010
7For institutional and professional investors only. For information only.
Not for further distribution or distribution to retail investors
Underestimate of corporate earnings and cash
Improving outlook for companies
In the US, earnings likely to rise sharply, supported by accommodation monetary policy
Margins improving to exceed previous peaks in consumer discretionary and technology sectors
Mild inflation is positive for equities, especially food retail, basic resources and chemicals
However, US valuations no longer look attractive, suggesting it is increasingly difficult to justify extending overweight positioning
European equities benefiting from low valuation levels and improving profitability
RADAR
US S&P position of 15%
European Equities position of 29%
Source: Barclays Capital Research, Global Outlook, December 2010
8For institutional and professional investors only. For information only.
Not for further distribution or distribution to retail investors
Expectation of growth in corporate CAPEX
Technology and business services likely to benefit
High and improving levels of free cash give rise to strong balance sheets
Corporates selectively positioning for stronger growth going forward
IT hardware and software upgrade/replacement cycle playing “catch up” after downturn
However, softening of economic outlook or hardening of Fed policy are clear triggers for pull back in corporate CAPEX
Labour costs are still relatively depressed and labour market is easy
RADAR
US Technology Stocks position of 9.2%
US Industrials Stocks positions of 9.4%
Source: Barclays Capital Research, Global Outlook, December 2010
9For institutional and professional investors only. For information only.
Not for further distribution or distribution to retail investors
Overblown fears of UK re-entering recession
Polarised views driving mixed markets
Q4 2010 GBP number -0.5% gave rise to double-dip fears
Credit should continue to outperform sovereign debt although absolute returns are likely to be limited
UK MPC continues to follow accommodative policy despite rising inflation
However, should workers start to argue for wage increases and inflation become embedded, higher rates have the potential to derail the recovery story
Initial economic activity numbers for Jan 11 supportive of strengthening recovery
RADAR
Interest Rate swap relative value trade:
payer UK 5yr, receiver US 5yr
Source: Barclays Capital Research, Global Outlook, December 2010
10For institutional and professional investors only. For information only.
Not for further distribution or distribution to retail investors
European Dividend Futures pricing in excessively negative view
Rain in Spain, but equities can gain
Valuations remain low in both absolute and relative terms
Corporate reform of the last 10 years is bearing fruit in productivity
Labour costs remain subdued
However, turbulence in the peripheral states continues to add to volatility
The European Stock Market does NOT equal the Euro Area Economy
RADAR
Long position in European Divided Futures of 5.0%
Source: Barclays Capital Research, Global Outlook, December 2010
RADAR Fund Positioning and Performance
12For institutional and professional investors only. For information only.
Not for further distribution or distribution to retail investors
RADAR Fund Positioning
Portfolio Positioning as of 31st January 2011
Strategy Portfolio Allocation – 31 January 2011
0%2%4%6%8%
10%12%14%16%18%20%
Euro
pean
Cre
dit Bo
nds
5y5y
GBP
USD
IRS
DA
X F
utur
es
Euro
STO
XX 5
0 Fu
ture
s
Hig
h D
ivid
end
Equi
ty B
aske
t
Met
als
and
Min
ing
Equi
tyBa
sket
US
Larg
e Cap
Bas
ket
S&P
500
Inde
x Fu
ture
s
US
Tec
hnol
ogy
Stoc
k Eq
uity
Bask
et
US
Indu
strial
s St
ock
Equi
tyBa
sket
KO
SPI 2
00 F
utur
es
Credit Fixed Income European Equities US Equities Asian Equities
Strategy Portfolio Allocation – 31 January 2011
0%2%4%6%8%
10%12%14%16%18%20%
Euro
pean
Cre
dit Bo
nds
5y5y
GBP
USD
IRS
DA
X F
utur
es
Euro
STO
XX 5
0 Fu
ture
s
Hig
h D
ivid
end
Equi
ty B
aske
t
Met
als
and
Min
ing
Equi
tyBa
sket
US
Larg
e Cap
Bas
ket
S&P
500
Inde
x Fu
ture
s
US
Tec
hnol
ogy
Stoc
k Eq
uity
Bask
et
US
Indu
strial
s St
ock
Equi
tyBa
sket
KO
SPI 2
00 F
utur
es
Credit Fixed Income European Equities US Equities Asian Equities
Source: Barclays CapitalAs of 31st January 2011RADAR asset allocations are subject to change
13For institutional and professional investors only. For information only.
Not for further distribution or distribution to retail investors
Changing asset allocations over time
Optimised portfolio asset allocations over time – dynamic portfolio management in action
(40%)
0%
40%
80%
120%
160%
200%
Mar
-200
9
Apr
-200
9
May
-200
9
Jun-
2009
Jul-2
009
Aug
-200
9
Sep
-200
9
Oct
-200
9
Nov
-200
9
Dec
-200
9
Jan-
2010
Feb
-201
0
Mar
-201
0
Apr
-201
0
May
-201
0
Jun-
2010
Jul-2
010
Aug
-201
0
Sep
-201
0
Oct
-201
0
Nov
-201
0
Dec
-201
0
Jan-
2011
Commodities Equities Fixed Income FX
Note: Chart shows allocation data for the RADAR Strategy from March 2009 to 31January 2011. These allocations exclude cash positions.The Strategy was launched in March 2009. Source: Barclays Capital as of 31 January 2011RADAR asset allocations are subject to change
14For institutional and professional investors only. For information only.
Not for further distribution or distribution to retail investors
RADAR: Performance Analysis in Feb 2011
97
98
99
100
101
102
103
104
105
31/0
1/20
11
02/0
2/20
11
04/0
2/20
11
06/0
2/20
11
08/0
2/20
11
10/0
2/20
11
12/0
2/20
11
14/0
2/20
11
16/0
2/20
11
18/0
2/20
11
20/0
2/20
11
22/0
2/20
11
24/0
2/20
11
26/0
2/20
11
28/0
2/20
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RADAR (GBP)
FTSE 100 Index
Risk management is carried out on a daily basis. The RADAR fund dramatically reduced its equity exposure half way through the month, taking profits and protecting the downside, as equities sold off on the back of the turmoil in the Middle East.
Source: Barclays Capital as of 28 February 2011. Fund performance calculated as total return net of fees in GBP.Note: The inclusion in this graph of performance for the FTSE 100 Index is for illustrative purposes only. The strategy has no single benchmark. Past performance is no indication of future performance.
RADAR and FTSE 100 Index throughout February 2011
15For institutional and professional investors only. For information only.
Not for further distribution or distribution to retail investors
RADAR Performance
80
100
120
140
160
180
Mar-0
9
May
-09
Jul-0
9
Sep-
09
Nov-0
9
Jan-1
0
Mar-1
0
May
-10
Jul-1
0
Sep-
10
Nov-1
0
Jan-1
1
RADAR (GBP)
FTSE 100 Index TR
FTSE Actuaries Govt Securities UK GiltsTR
RADAR vs UK Equity and Bond market since inception*
KEY PERFORMANCE INDICATORS
RETURN 1M (%) RETURN 3M (%) RETURN 12M (%)ANNUALISED RETURN SINCE INCEPTION**(%)
ANNUALISED VOLATILITY SINCE INCEPTION** (%)
RADAR 3.34% 8.55% 10.16% 20.00% 13.54%
FTSE 100 2.64% 9.02% 15.51% 28.35% 18.35%
FTSE Actuaries Govt Securities UK Gilts
0.71% -1.31% 5.59% 2.61% 6.33%
*Using month end data from 31st March 2009 to February 28th 2011**Using daily data from 23rd March 2009 to February 28th 2011Source: Barclays Capital as of 28 February 2011. Fund performance calculated as total return net of fees in GBP.Note: The inclusion in this graph of performance for the FTSE 100 Index and FTSE Actuaries Govt Securities UK Gilts Index is for illustrative purposes only. The strategy has no single benchmark. Past performance is no indication of future performance.
For institutional and professional investors only. For information only. Not for further distribution or distribution to retail investors
16
RADAR – Strategy Overview
• Positive absolute returns with below-equity volatility
• Multi-asset global macro strategy
• Highest conviction investment ideas from one of the best
research houses in UCITS III fund form
• Good track record in delivering positive absolute returns
• Benefits from Barcap Research expertise in economic and
market analysis, and tactical asset allocation
• Benefits from BCFS expertise in cross-asset fund
management, downside risk control and trade execution
• Rigorous investment process and strict governance
• Focuses on liquid securities
• Barcap Research acts in an advisory role
• BCFS has fiduciary responsibility for all funds under
management; manages the strategy on a day-to-day basis;
makes investment decisions
Cash, equities, bonds futures, liquid OTCs (1)
Multi-Asset
VaR constrained leverage
Global Macro
Global
Daily
Key Facts
01 March 2009
*Over The Counter instruments comprise mainly interest rate swaps** Source: Citywire – Newcits Global Macro Universe as at 31 January 2011
Regional Coverage
Instruments Used
Liquidity
Diversification
Market Exposure
Classification
Strategy Launch Date
Positive absolute returns in all market environments
Target
Performance
TargetPerformance
Return
RADAR targets positive absolute returns in all market conditions by leveraging the key recommendations from Barclays Capital Research
Historical volatility 10-12% per annum
Key Features
**Quartile Rank
2nd Over 1 Month1st Over 3 Months2nd Over 1Year2nd Over 18 Months
17For institutional and professional investors only. For information only.
Not for further distribution or distribution to retail investors
Questions?
18For institutional and professional investors only. For information only.
Not for further distribution or distribution to retail investors
RADAR – Q1 2011 Conference Call – 8th April 2011
RADAR QUARTERLY INVESTOR CALL
Friday 8th April 2011, 09:30 – 10.15 London time United Kingdom Dial in: +44 (0)203 134 4555
Password: BCFS RADAR
An update on the RADAR fund and research’s outlook
For institutional and professional investors only. For information only. Not for further distribution or distribution to retail investors
19
Risk Factors
THESE RISK FACTORS HIGHLIGHT ONLY SOME OF THE RISKS OF THE STRATEGIES DESCRIBED IN THIS DOCUMENT (EACH, A “STRATEGY”).
Barclays’ rating is not a recommendation as to Barclays’ creditworthiness or the risks, returns or suitability of Strategy.
THIS STRATEGY MAY BE VOLATILE. The level of change in value of a Strategy is its “volatility”. The Strategy’s volatility may be affected by performance of the underlying assets, along with financial, political and economic events and other market conditions.
TAX MAY APPLY. Payments from the Strategy may be subject to tax, withholding and other deductions.
THIS STRATEGY COMBINES INVESTMENT TYPES. Different types of financial risk may interact unpredictably, particularly in times of market stress.
THIS DOCUMENT CANNOT DISCLOSE ALL POSSIBLE RISKS OF THE Strategy. Before investing, you must satisfy yourself that you fully understand the risks of investment.
Before investing, you should read the investment guidelines. The manager’s fees are paid from assets under management and will reduce the return on the Strategy.
All opinions and estimates are given as of the date hereof and are subject to change.
This Strategy is collateralised to the extent required to ensure compliance with applicable laws and regulations. However if a counterparty does not post collateral to the Strategy as and when required, the Strategy may terminate the transaction(s) with such counterparty and the Strategy may suffer significant losses as a result.
Furthermore, since the Strategy bears counterparty’s credit risk, if a counterparty becomes insolvent the Strategy may not be able to meet all its payment obligations.
For institutional and professional investors only. For information only. Not for further distribution or distribution to retail investors
20
Important Information
This document is an indicative summary. It has been prepared by Barclays. It is subject to change. This document is for information purposes only and is not binding. We are not offering to sell or seeking offers to buy any Strategy. Any transaction requires our subsequent formal agreement which will be subject to internal approvals and binding transaction documents.
Obtain independent professional advice before investing. We are not recommending or making any representations as to suitability of any Strategy. Counterparties (which may include, without limitation, Barclays), their affiliates and associated personnel may act in several capacities in financial instruments which may adversely affect the Strategy’s performance.
Any past performance or simulated past performance contained herein is no indication as to future performance. No representation is made as to the reasonableness of the assumptions made within or the accuracy or completeness of any pricing information, performance data or modelling in these materials.
We are not responsible for information stated to be obtained or derived from third party sources or statistical services. No part of this document may be reproduced, distributed or transmitted without Barclays’ written permission. Barclays may disclose any information relating to your investment which is required by regulators. Barclays will not be liable for any use you make of any information in this document.
Barclays Capital is the investment banking division of Barclays Bank PLC. Barclays Bank PLC is authorised and regulated by the UK Financial Services Authority and a member of the London Stock Exchange. Barclays Bank PLC is registered in England No. 1026167. Registered Office: 1 Churchill Place, London E14 5HP.
Copyright Barclays Bank PLC, 2011 (all rights reserved).