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Excess Return on the Euro
October 2012
Presentation prepared for Eurizon Capital SA
Excess Return on the Euro Bond sector
with lower volatility
EF Euro Bond I vs JP Morgan Emu Govt Bond Index (Eur)
Excess return and lower volatilityWith respect to the euro bond sector
Epsilon Fund Euro Bond I LU0278427041
YTD since inception
• Excess Return + 3,96% +7.94%
• Sharpe Ratio 1,30 0,52
Information Ratio 1,17 0,51
2/18Eurizon Capital SA. Documento ad uso esclusivo degli Investitori
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• Information Ratio 1,17 0,51
• Jensen’s Alpha + 4,96% + 1,05%
• Morningstar Rating*
Source: internal elaboration on Bloomberg data as of October 3 rd 2012* Data as of September 28 th 2012
The Fixed Income & FX Team
FIXED INCOME & FX
Paolo Bernardelli
FLEXIBLE FUNDS
2 Fund Managers
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• 55 billion € of assets under management, of which 29 billion € are managed inLuxembourg and 26 billion € in Milan
• 24 Fund managers – Average work experience: 14 years
• 46 portfolios
GOVERNMENT BOND
3 Fund Managers
6 Billions of Euros
MONEY
MARKET
4 Fund Managers
23 Billions of Euros
GOVERNMENT BOND
ACTIVE MANAGEMENT
7 Fund Managers
19 Billions of Euros
CORPORATE
BOND
7 Fund Managers
7 Billions of Euros
Source: Eurizon Capital SGR Elaboration — data as of 28/09/2012Document for exclusive use of institutional investors. October 2012
Investment
objective
• A very well resourced team (supported by 24 PMs) that has
To overperform the JPM Emu Government Bond Index, within a risk limit constraint of 1,9% in terms of TEV.It invests in European Government bonds and marginally (up to 10% on average) in Government Bonds of other major countries (mainly G7 ones) and corporate bonds
Active management through an optimal risk budgeting model
Epsilon Fund Euro Bond IHighlights
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Strengths
• A very well resourced team (supported by 24 PMs) that has
worked together for a long time (avg experience 14 years)
• A comprehensive and successful investment process
• A constant research of alpha through the implementation of
active and uncorrelated strategies
• The use of an optimization model that allocates the risk budget
on the basis of the fund manager’s skills
• A rigorous control of the portfolio’s risk
• as of 28/09/2012*
*see disclaimer at the end of the documentDocument for exclusive use of institutional investors. October 2012
Excess return and lower volatility with respect tothe Euro bond sector: GIPS data since inception
Fund name Epsilon Fund Euro Bond
Eurizon Obbligazioni Euro
Annualized excess return(1) + 1.67% + 0.61%
Tracking Error (2) 2.06% 1.52%
Information ratio (3) 0.81 0.40
Probability of positive annual excess return(4) 79% 66%
Greatest expected annual loss with 99% confid.(5) -3.14% -2.92%
Greatest annual loss actually experienced -2.14% -1.98%
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(1) Average of the excess return of the fund vs. benchmark calculated in compliance with the GIPS standards
(2) Standard deviation of the excess return
(3) Defined as the ratio of the active return divided by the tracking error
(4) Assuming that excess returns are normally distributed with average equal to the excess return and standard deviation equal to the tracking error
(5) Assuming that excess returns are normally distributed, it shows that the probability of suffering losses higher than the specified value is lower than 1%
(6) It measures the worst cumulative loss of the fund vs. benchmark computed with reference to all the possible time horizons during the reference period
(7) Number of months required to recover all the cumulative loss vs. benchmark suffered by the fund from peak to trough during the maximum drawdown
Greatest annual loss actually experienced -2.14% -1.98%
Maximum drawdown (6) -2.80% -3.65%
Peak to Recovery (7) 7 9
Inception 31/1/2007 30/09/1999
Source: internal elaboration on GIPS data as of September 28 th 2012 Document for exclusive use of institutional investors. October 2012
Excess return distribution ofEpsilon Fund Euro Bond since January 2007*
Epsilon Fund Euro Bond I: annual excess return vs. Normal distribution
2.0
3.0
3
4
5
6
equency
Epsilon Fund Euro Bond: excess return annuale vs. distribuzione normale
6/18Eurizon Capital SA. Documento ad uso esclusivo degli Investitori
Istituzionali. È vietata la diffusione al pubblico. Ottobre 2012*Distribution of excess returns on the basis of 12-month-rolling periodsSource: internal elaboration on data as of September 28 th 2012
0.0
1.0
0
1
2
-7.50%
-7.00%
-6.50%
-6.00%
-5.50%
-5.00%
-4.50%
-4.00%
-3.50%
-3.00%
-2.50%
-2.00%
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
5.00%
5.50%
6.00%
6.50%
7.00%
7.50%
Freq
Frequency Normal distribution with mean centered on 0 (zero skill hypothesis)
Document for exclusive use of institutional investors. October 2012
DURATION, CURVE,
AND INFLATION LINKED
COUNTRY SPREAD
AND SWAP
Epsilon Fund Euro Bond IAlpha Sources
EMU
Non EMU
Alpha Sources Main markets Skills & Performance Contribution
EMU
35%
50%
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AND SWAP
FOREX
CREDIT
G 10 currencies mainly
EMU Government Guaranteed
EUR Corporate
5%
10%
Source: internal elaboration on data as of September 28 th 2012
Document for exclusive use of institutional investors. October 2012
Epsilon Fund Euro Bond IInvestment Process: the 4 steps
� Structured and disciplined process
� Seniority supported by a multi-year-experience in European Bonds (14 years on average)
� The fund manager relies on the support of market specialists and
Market
Analysis
View
Generation
KEY SUPPORTING ELEMENTS
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support of market specialists and analysts (24 people)
� The process makes use of sophisticated tools for the market analysis and the optimal portfolio allocation
� Rigorous attention to riskmanagement processes
Portfolio
Construction
Optimization
Document for exclusive use of institutional investors. October 2012
Markets AnalysisInvestment Process (1)
• Cycle and growth• Expected inflation• Monetary policy• Fiscal policy
• Fair value assessment of interest rate curves
Macro Analysis
Fair – value
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rate curves• Fair value assessment of the major FX crosses
• Technical analysis indicators• Positioning of “real money” investors• Positioning of speculative investors• Sentiment indicators• Seasonality
Fair – value
Analysis
Technicals &
Positioning
Market
Analysis
View
Generation
Portfolio
Construction
Optimization
Document for exclusive use of institutional investors. October 2012
Views generation and investment strategiesInvestment Process (2)
Core Strategies
• EUR Duration
• EUR Curve and Swap Spread
• EUR Country Spread / Inflation
Core EMU Govt long
Core Emu steepening
Long Core vs Periph.
+ITA Govt vs Spain
EMU swap spr.tighten.
Emu +5,+30,- 10yrs
Core EMU flattening
Short Core vs Periph
-ITA Govt nom vs IL
Moderate growth
ranging markets
Recession/ Recession/
StagnationStagnation and and
riskrisk aversionaversion
Recovery growth
attraction for risk
CORE STRATEGIES
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Cor
• USD, GBP, JPY Duration
• USD Curve, Swap, Inflation
• Currencies USD, GBP, JPY …
•
Spread Strategies
• EUR Gov. Guaranteed, Covered
• EUR Corporate Credit
US Tys stepening
Long USD vs EUR
+ EMU Govt / - IG
+US Govt 10yrs - Ger
Long GBP vs JPY
Long EMU covered
-US Govt nom vs IL
US Govt flattening
+IG vs EMU Govt
CORE PLUS STRATEGIES
SPREAD STRATEGIES
Illustrative strategies
Document for exclusive use of institutional investors. October 2012
OptimizationInvestment Process (3)
CORE
STRATEGIES
Optimal Risk Budgeting with Skill
(ORBS)
PORTFOLIO
CONSTRUCTIONOPTIMIZATIONINPUTINPUT
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STRATEGIES
FUND
MANAGER
SKILLS
(ORBS)
The ORBS framework allows the fund manager to optimally allocate the risk budget across active strategies, taking into
account the correlations between the payoffs of individual bets and the manager skill at timing strategies, within a risk limit of 1,90% in terms of TEV. The aim of the model is to maximise the
alpha.
CORE PLUS
STRATEGIES
SPREAD
STRATEGIES
Market
Analysis
View
Generation
Portfolio
Construction
Optimization
Document for exclusive use of institutional investors. October 2012
Optimization: how the ORBS model works(Optimal Risk Budget System)
Core StrategiesSkill
EUR DURATION10%
EUR CURVE14%
9%
EUR SWAP SPREAD
21%
EUR COUNTRY
ShortEMU Govt Benchmk
Set to Neutral
ShortEMU Govt 3-7yr vs 10+yr
NeutralEUR 2yr Govt Fut vs 2yr SW
ShortEMU Govt 7-10yr vs 10+yr
Core-Plus StrategiesSkill
USD DURATION13%
USD CURVE15%
15%
USD SWAP SPREAD
15%
USD INFLATION
NeutralUST 10yr Fut Outright
Set to Neutral
NeutralUSD 5yr TSY Fut vs 5yr SW
NeutralUST Fut 3-7yr vs 7-10yr
NeutralUST Fut 3-7yr vs 7-10yr
Spread StrategiesSkill
EUR GOVT GUARANTEED
Swap Related vs EMU Govt 5%
EUR SECURITIZED
EUR COV vs EMU Govt 5%
EMG Local
EMG vs EMU Govt 5%
EUR CORPORATE CREDIT
Neutral
Neutral
Long
Set to Neutral
12/18Eurizon Capital SA. Documento ad uso esclusivo degli Investitori
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EUR COUNTRYvs 6%
vs 6%
vs 6%
vs 6%
vs 6%
EUR INFLATION
10%
LongItaly CUST_Low
NeutralIrelandIreland ItalyItaly
NeutralNetherlandsNetherlands ItalyItaly
NeutralGreeceGreece GermanyGermany
LongEUR IL vs Govt Futures
NeutralN/AN/A N/AN/A
USD INFLATION10%
GBP DURATION
8%
JPY DURATION
5%
FX
vs 6%
vs 6%
vs 6%
vs 6%
CCTs
vs 8%
Neutral
Neutral10yr Futures Outright
Neutral10yr Futures Outright
Long
USD IL Outright
LongCCTs EURCCTs EUR CashCash
USD EUR
LongCHF EUR
NeutralN/AN/A N/AN/A
NeutralN/AN/A N/AN/A
EUR CORPORATE CREDIT
5%
1%
14%
Credit Issuer Selection
Funding:
BENCHMARK DEFINITION
0%
100%
Risk Budget bp/y
140Optimize
LongIG vs EMU Govt
Neutral
NeutralHY vs EMU GovtHY vs EMU Govt
Fund EMU Govt (YC hedged)
BOT
EMU
iTraxx.EUR 5yriTraxx.EUR 5yr Neutral
Document for exclusive use of institutional investors. October 2012
Portfolio ConstructionInvestment process (4)
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The table shows the different strategies, investor views, positions in the optimal allocation, with the risk and alpha contributions.
Market
Analysis
View
Generation
Portfolio
Construction
Optimization
Source: internal elaboration on data as of September 28 th 2012Document for exclusive use of institutional investors. October 2012
Epsilon Fund Euro BondPortfolio allocation
Absolute instrument type exposure Time to Maturity (ex money market) Active geographical weigths
63,1%
1,1%
1,0%
0,4%
34,3%
Government
Corporate
Agency
Other
Money market
1,5%
23,0%
0,6%
11,6%
28,9%
5%
10%
15%
20%
25%
30%
35% GERMANY
AUSTRIA
NETHERLAND
FINLAND
SUPRANATIONAL
FRANCE
BELGIUM
ITALY
SPAIN
Fund 30/06
Fund 28/09
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Duration Exposure
Absolute Rating Exposure
0% 20% 40% 60%
0%
0-3 3 - 5 5 - 7 7 - 10 10+
-20% -10% 0% 10% 20% 30% 40%
SPAIN
PORTUGAL
IRELAND
-0,35
-0,28
-0,62-0,54
0,85
-0,80
-0,60
-0,40
-0,20
0,00
0,20
0,40
0,60
0,80
1,00
0-3 3 - 5 5 - 7 7 - 10 10+
24,3%
9,1%
0,0%
31,1%
1,2%
-5,0%
0,0%
5,0%
10,0%
15,0%
20,0%
25,0%
30,0%
35,0%
AAA AA A BBB < BBB
Source: internal elaboration on data as of September 28 th2012Document for exclusive use of institutional investors. October 2012
Epsilon Fund Euro BondPortfolio allocation
FUND BMK Duration 0-3 3-5 5-7 7-10 10+
Germany 1,3 1,5 -0,1 -0,1 -0,4 -0,1 -0,3 0,8Austria 0,0 0,3 -0,3 0,0 0,0 0,0 -0,1 -0,1
Netherlands 0,1 0,4 -0,3 0,0 0,0 -0,1 -0,1 -0,1Finland 0,0 0,1 -0,1 0,0 0,0 0,0 0,0 0,0
Supranational 0,2 0,0 0,2 0,2CORE 1,7 2,3 -0,6 -0,2 -0,5 -0,2 -0,5 0,7
France 1,4 1,6 -0,1 -0,1 -0,2 -0,1 -0,2 0,4
Allocation yield curve/country GOVT CORP AGENCY OTHER TOT
0-1yrs 0,0% 1,1% 0,0% 0,0% 1,1%1-3yrs 1,0% -0,6% 0,0% 0,0% 0,4%3-5yrs 22,4% 0,3% 0,0% 0,3% 23,0%5-7yrs 0,4% 0,2% 0,0% 0,0% 0,6%7-10yrs 11,6% 0,1% 0,0% 0,0% 11,6%10-20yrs 12,3% 0,0% 0,0% 0,0% 12,4%>20yrs 15,5% 0,0% 1,0% 0,0% 16,5%
Maturity / Asset Class (absolute exposure)
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France 1,4 1,6 -0,1 -0,1 -0,2 -0,1 -0,2 0,4Belgium 0,4 0,4 -0,1 0,0 -0,1 0,0 -0,1 0,1
FR+BE 1,8 2,0 -0,2 -0,1 -0,2 -0,2 -0,3 0,6
Italy 1,5 1,3 0,2 -0,1 0,6 -0,1 0,2 -0,3Spain 0,4 0,5 -0,2 -0,1 0,0 0,0 0,0 -0,1
IT+ES 1,8 1,8 0,0 -0,1 0,6 -0,2 0,2 -0,5
Portugal 0,1 0,1 0,0 0,0 0,0 0,0 0,0 0,0Ireland 0,0 0,1 -0,1 0,0 0,0 0,0 0,0 0,0
PT+IE 0,1 0,2 -0,1 0,0 0,0 0,0 0,0 0,0Other + Cash 0,0 0,0 0,0 0,1 -0,1
TOT 5,3 6,3 -0,9 -0,3 -0,3 -0,6 -0,5 0,9
GOVT CORP AGENCY OTHER TOT
AAA 23,2% 0,0% 1,0% 0,0% 24,3%AA 9,0% 0,0% 0,0% 0,1% 9,1%A 0,9% -0,9% 0,0% 0,0% 0,0%
BBB 29,0% 1,8% 0,0% 0,3% 31,1%< BBB 1,0% 0,2% 0,0% 0,0% 1,2%
TOT 63,1% 1,1% 1,0% 0,4% 65,7%
Rating / Asset Class (absolute exposure)
16,5%TOT 63,1% 1,1% 1,0% 0,4% 65,7%
Source: internal elaboration on data as of September 28 th 2012Document for exclusive use of institutional investors. October 2012
EF Euro Bond I beated the JPM Emu GovtBond Index € on all maturities
Cumulative Performance
3M 6M YTD 1YR 3YR Launch
Portfolio 5.79% 4.57% 11.99% 11.47% 15.58% 37.22%
Benchmark 4.77% 4.40% 8.03% 7.52% 11.15% 29.28%
Overperformance 1.02% 0.17% 3.96% 3.95% 4.43% 7.94%
Top Holdings
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Duration Rating S&PGovernment 3.71 BBB+Government 7.36 BBB+Government 3.95 BBB+Government 17.09 AA+Government 21.84 AAAGovernment 8.56 AAAGovernment 6.77 BBB+Government 6.62 AA+Government 0.37 BBB+Government 4.02 BBB+Government 19.99 AAAGovernment 3.52 BBB+Government 17.00 AAGovernment 8.72 AA+Government 14.95 AAAGovernment 10.72 AA+Government 9.26 BBB+
Top Holdings
WeightBTP 2,1% 09/16 I/L 9.60% GovernmentBTPS 5 1/2 11/01/22 6.11% GovernmentBTPS 4 3/4 05/01/17 4.18% GovernmentOAT 4,5% 04/41 3.86% GovernmentDBR 2,5 07/04/44 3.25% GovernmentBUNDES 6,25% 01/24 2.79% GovernmentSPANISH 5,85% 01/22 2.52% GovernmentOAT 3,5% 04/20 2.43% GovernmentCCT TV 03/17 2.35% GovernmentBTPS 4 3/4 06/01/17 1.92% GovernmentDBR 3,25%07/2042 1.87% GovernmentSPGB 4,25% 10/16 1.86% GovernmentBELGIAN 4,25% 03/41 1.80% GovernmentOAT 4,25% 10/23 1.67% GovernmentBUNDES 4,75% 07/34 1.59% GovernmentFRANCE O.A.T.3,5%4/26 1.52% GovernmentBTP 6,5% 01/11/27 1.48% Government
Source: internal elaboration on data as of September 28 th 2012Document for exclusive use of institutional investors. October 2012
Epsilon Fund Euro BondFund data
Fund name Epsilon Fund Euro Bond I
Benchmark JP Morgan Emu Govt Bond Index (Eur)
Category Euro Area Government Bond
Domicile Luxembourg, UCITS III, FCP
Launch date January 8 th 2007
Dealing Daily
Nav Daily, in €
Fees (%) Management: 0,25% annual.
AUM distribution for Investor Type
Wholesale Clients 142,722,632 44%
of which Fund Users 126,938,343 39%of which Private 15,784,289 5%
Captive Clients 147,565,631 45%
of which Retail 130,741,159 40%
of which Private B. 16,824,472 5%
Wealth Management 35,391,397 11%
Total 325,679,660 100%
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Fees (%) Management: 0,25% annual.
Performance: 15% of annual extra performance
Codes Isin: LU0278427041 Bloomberg: EURZEUB LX
Riskconstraints
Max TEV : 1,9%
Management Company
Eurizon Capital SA
CustodianBank & Paying Agent
State Street Bank Luxembourg SA
Fund manager Paolo Bernardelli
Document for exclusive use of institutional investors. October 2012
Disclaimer
The content of this document is for information purposes only and is targeted solely to institutional investors.
To the best of the knowledge, information and belief of Eurizon Capital S.A., all information contained herein is accurate as at the date of
publication and is provided on an "AS IS" basis and without any warranties of any kind, either expressed or implied. However, neither
Eurizon Capital S.A. nor its affiliates nor any directors or employees can or does warrant, guarantee or represent, either expressly or by
implication, the accuracy, validity or completeness of such information.
This document contains information covering different Luxembourg-domiciled UCITS III umbrella funds, managed and registered in many
locations worldwide. In particular the Funds are registered for marketing in some, but not all EU countries. As such, access to the information
contained herein may be restricted by laws and regulations applicable to the user. This information is not intended to be published or made
available to any person in any jurisdiction where doing so would result in breach of any applicable laws or regulations. In particular,
marketing of certain Funds is restricted to certain jurisdictions only.
The user should ensure that the use of this information and any investment made as a result does not breach any such restrictions. It is the
user's responsibility to be informed and to observe all applicable laws and regulations of any relevant jurisdiction.
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user's responsibility to be informed and to observe all applicable laws and regulations of any relevant jurisdiction.
In particular, the information contained in this document does not constitute investment advice or an offer to sell or the solicitation of any
offer to buy any securities or services in the United States to or for the benefit of any United States persons (being residents of the United
States or partnerships or corporations organised under the laws of the United States). The Funds have not been registered in the United
States under the Investment Company Act of 1940 and units or shares of the Funds are not registered in the United States under the
Securities Act of 1933.
The document is not directed at investors in Hong Kong and its content has not been approved by the Hong Kong Securities and Futures
Commission.
Under no circumstances may the information contained herein, or any part thereof, be copied, reproduced or redistributed without the
express permission of Eurizon Capital S.A.. Neither Eurizon Capital S.A. nor its affiliates, or any directors or employees shall be liable for any
damage arising from any person's reliance on such information and shall not be liable for any errors or omissions (including but not limited
to errors or omissions made by third parties) in such information.
The information provided herein is subject to change without further notice.
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