Global Outlook and Portfolio Construction Jim Haskel ... · PDF file- 12 - EQUITY RISK...
39
One Glendinning Place Westport, CT 06880 (203) 226-3030 www.bwater.com Jim Haskel – Portfolio Strategist Global Outlook and Portfolio Construction 5 November 2009
Transcript of Global Outlook and Portfolio Construction Jim Haskel ... · PDF file- 12 - EQUITY RISK...
One Glendinning PlaceWestport, CT 06880
(203) 226-3030www.bwater.com
Jim Haskel – Portfolio Strategist
Global Outlook and Portfolio Construction
5 November 2009
- 1 -
OBSERVATIONS
1) The heavily indebted developed world, epitomized by the U.S., remains in a de-leveraging, depressionary environment.
2) This de-leveraging has been offset by a powerful wave of central bank liquidity/government spending. This wave is now ebbing.
3) The liquidity has flowed into financial markets, but has not created private sector credit.
4) The liquidity has driven market prices to implicitly discount a relatively optimistic economic scenario.
5) The creditors in the emerging world, epitomized by China, have fully recovered from the financial crisis and are decoupling cyclically and secularly from the developed world.
- 2 -
SECULAR DEBT EXPANSION WITH INTEREST RATES AT ZERO
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Source: Global Financial Data Inc. and Bridgewater Analysis.
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- 3 -
PRIVATE SECTOR BALANCE SHEETS ARE STILL STRAINED
0%
2%
4%
6%
8%
10%
12%
14%
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08
Usa Personal Savings Rate (as % Disp Income) USA Savings Rate Level Est
250%
300%
350%
400%
450%
500%
550%
600%
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08
Household Net Worth %GDP
1.11.121.141.161.181.2
1.221.241.261.281.3
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08
Household Leverage
Leverage levels at highs
1.3
1.4
1.5
1.6
1.7
1.8
1.9
2.0
2.1
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08
Non-Financial Business Leverage
Leverage levels at highs
- 4 -
WEAK PRIVATE SECTOR CREDIT CREATION
-5%
0%
5%
10%
15%
20%
25%
60 65 70 75 80 85 90 95 00 05
Credit Market Borrowing by US Non-Financial Sector ex-Federal Govt %PGDP
-15%
-10%
-5%
0%
5%
10%
15%
20%
60 65 70 75 80 85 90 95 00 05
Credit Market Borrowing by US Financial Sector %PGDP
-1.5%
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
60 65 70 75 80 85 90 95 00 05
Consumer Credit Borrowing %PGDP (3mma)
-5%
0%
5%
10%
15%
20%
60 65 70 75 80 85 90 95 00 05
Credit Market Borrowing by US Federal Govt %PGDP
- 5 -
LEVELS MATTER MORE THAN RATES OF CHANGE
3%
4%
5%
6%
7%
8%
9%
10%
11%
86 88 90 92 94 96 98 00 02 04 06 08 10
Unemployment Rate
65%
70%
75%
80%
85%
90%
95%
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08
United States Capacity Utilization
-8%
-6%
-4%
-2%
0%
2%
4%
6%
66 69 72 75 78 81 84 87 90 93 96 99 02 05 08
USA GDP Gap
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
60 65 70 75 80 85 90 95 00 05 10
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
1Yr Change in Unemployment Rate RGDP Growth (Inverted)
Sustained growth rates north of 3% are needed to drive the unemployment rate lower
- 6 -
Source: Global Financial Data Inc. and Bridgewater Analysis.
ARRESTING THE SELF-REINFORCING DECLINEM0 (Monetary Base) %GDP
0%
5%
10%
15%
20%
25%
1920 1930 1940 1950 1960 1970 1980 1990 2000 2010
Fed replaces credit with money
72%
74%
76%
78%
80%
82%
84%
86%
88%
90 92 94 96 98 00 02 04 06 08
-13%
-8%
-3%
2%All Other Household Income %PGDP Household Transfer Payments - HH Taxes %PGDP
1st stimulus
2nd stimulus
- 7 -
CENTRAL BANKS WERE/ARE ACTIVE ACROSS THE WORLD
4%
6%
8%
10%
12%
14%
16%
18%
85 88 91 94 97 00 03 06 09
Fed Balance Sheet - All Assets % GDP
8%
10%
12%
14%
16%
18%
20%
22%
24%
85 88 91 94 97 00 03 06 09
ECB Balance Sheet - All Assets % GDP
0%
5%
10%
15%
20%
25%
30%
35%
85 88 91 94 97 00 03 06 09
BoJ Balance Sheet - All Assets % GDP
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
85 88 91 94 97 00 03 06 09
BoE Balance Sheet - All Assets % GDP
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
85 88 91 94 97 00 03 06 09
BoC Balance Sheet - All Assets % GDP
5%
6%
7%
8%
9%
10%
11%
12%
13%
14%
85 88 91 94 97 00 03 06 09
RBA Balance Sheet - All Assets % GDP
- 8 -
DEVELOPED WORLD REMAINS GRAVE WHILE EMERGING WORLD IS ESSENTIALLY BACK TO NORMAL
-15%
-10%
-5%
0%
5%
10%
15%
85 87 89 91 93 95 97 99 01 03 05 07 09
Diff between EM ex China and Developed World 3-month Growth Rates (Ann)
World 3-mth Growth Rates (Ann)
-15%
-10%
-5%
0%
5%
10%
15%
20%
85 87 89 91 93 95 97 99 01 03 05 07 09
Developed World EM ex China
EM ex China has returned to boom time growth rates...
…while the developed world is lagging
- 9 -
THE NECESSARY REPRICING OF U.S. ASSETS
Private capital inflows, BoP surplus
Private capital outflows, BoP deficit
New lows
-0.1
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
US Asset Returns From a Global Perspective
- 10 -
Problems WithConventional Portfolio Construction
- 11 -
CONVENTIONAL DUTCH PORTFOLIO
Alpha Risk (14%)
Beta Risk (86%)
Capital Allocation
Expectations are based on Bridgewater Associates’ understanding of global markets. There is no guarantee that the results shown can or will be achieved.
Equities - 38%Real Estate - 11%
Nominal Bonds - 39% Commodities - 3%
Hedge Fund - 6%
IL Bonds - 2%Cash - 0%
- 12 -
EQUITY RISK CONCENTRATION IS A WORLDWIDE ISSUEU.S.
Conventional Portfolio
Expectations are based on Bridgewater Associates’ understanding of global markets. There is no guarantee that the results shown can or will be achieved.
U.K.Conventional Portfolio
U.S. EndowmentConventional Portfolio
DutchConventional Portfolio
EuropeanConventional Portfolio
Sovereign Wealth Fund Conventional Portfolio
Equities - 63%Real Estate - 21%Nominal Bonds - 14%
Commodities - 2%IL Bonds - 0%
Equities - 64% Currency - 5%Real Estate - 17%Nominal Bonds - 10%
Corp. Bonds - 4%IL Bonds - 0%
Equities - 90%Currency - 1%Nominal Bonds - 4%
Real Estate - 4%
Commodities - 1%
IL Bonds - 0%
Equities - 91%Currency - 0%
Commodities - 3%Real Estate - 4%
Nominal Bonds - 1% Equities - 94%
Nominal Bonds - 3%Corp. Bonds - 3%
Commodities - 1%IL Bonds - 0%
Equities - 77% Currency - 4%Real Estate - 11%Corp. Bonds - 5%
Nominal Bonds - 3%IL Bonds - 0%
- 13 -
BIAS IS PERVASIVE THROUGHOUT SO-CALLED ALPHA
Please refer to Note 1 for relevant disclosures. Data for the top chart is shown as of June 30, 2009. Data for the bottom chart is shown as of August 31, 2009.
Traditional U.S. Fixed Income Managers
-3%
-2%
-1%
0%
1%
2%
3%
98 99 00 01 02 03 04 05 06 07 08 09
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
6%
Top 30 US Fixed Income Managers Average Rolling Annual Gross Excess Return USA Baa Corp Spread Ann Change (Inverted)
Correlation: 0.81
Hedge Funds
-30%
-20%
-10%
0%
10%
20%
30%
40%
94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Hedge Fund Index: Rolling Annual Alpha Returns (net) Bridgewater Naïve Replication
Correlation: 0.94
- 14 -
Principles of Portfolio Construction
- 15 -
KEY INVESTMENT PRINCIPLES
� Allocate risk, not capital.
� Separate asset risk into beta (passive exposure) and alpha (active manager returns). They are fundamentally different.
� Recognize the importance of diversification.
� No systematic bias.
- 16 -
THINKING IN RISK SPACE: STOCKS VS BONDS EXAMPLE
Cumulative Total Returns (ln)
-100%
0%
100%
200%
300%
400%
500%
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
2:1 Levered European Bonds (10yr Duration) MSCI Europe Equities
2:1 LeveredEuropean Bonds (10yr Duration)
European Equities
Excess Return 4.7% 3.3%
Volatility 15.2% 16.0%
Sharpe Ratio 0.31 0.21
- 17 -
Portfolio Return = Equities (Large Cap, Small Cap…), Fixed Income (Core, Emerging Market Debt, High Yield…), …, Hedge Funds
Type of risk:
Certainty of Positive Return:
Correlation:
Range of Expected Return/Risk:
Difficulty:
Market Manager
High over time None
Low
High
High
Low
HardEasy
Return = Beta Alpha+
VS.
+
BASIC PRINCIPLES: SEPARATING BETA AND ALPHA
Risk-Free Rate(Cash or Liability
Hedge Return)
- 18 -
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20
Number of Assets/Alphas in Portfolio
Ann
ual P
ortf
olio
Sta
ndar
d D
evia
tion
2.50 1%
1.25 11%
0.83 20%
0.63 26%
0.50 31%
0.42 34%
0.36 36%
0.31 38%
0.28 39%
0.25 40%
60% correlation
40% correlation
20% correlation
10% correlation
0% correlation
Return-to-
Risk Ratio
Probability of
Losing Money in a Given Year
GOAL: 15 OR MORE GOOD, UNCORRELATED RETURN STREAMS
- 19 -
Performance (Annualized)
Dutch Conventional
Portfolio
Diversified Beta At Same Return
Total Return 8.6% 8.6%Excess Return 2.7% 2.7%Stdev. 7.2% 4.1%Sharpe Ratio 0.37 0.65
BUILDING THE BEST BETA PORTFOLIOConventional Beta Portfolio Diversified Beta Portfolio
Data is shown gross of fees. Diversified beta portfolio is based on Bridgewater’s All Weather strategy. Expectations are based on Bridgewater Associates’ understanding of global markets. There is no guarantee that the results shown can or will be achieved. WHERE SHOWN, HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT.NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
Nominal BondsIL Bonds
Equities
CommoditiesEMD SpreadsCorp. Spreads
Real Estate
Performance (Annualized)
Dutch Conventional
Portfolio
Diversified Beta At Same Return
Total Return 8.6% 8.6%
Excess Return 2.7% 2.7%
Stdev. 7.2% 4.1%
Sharpe Ratio 0.37 0.65
Drawdowns
-30%
-25%
-20%
-15%
-10%
-5%
0%
70 71 72 73 74 75 76 77 78 79 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
Dutch Conventional Portfolio Diversified Beta At Same Return
Performance (Annualized)
Dutch Conventional
Portfolio
Diversified Beta At Same Return
Total Return 8.6% 8.6%Excess Return 2.7% 2.7%Stdev. 7.2% 4.1%Sharpe Ratio 0.37 0.65
- 20 -
� For higher returns, invest in “riskier” assets.� For less risk, keep more money in cash and bonds.
CONVENTIONAL ASSET RETURN/RISK PERSPECTIVE
Please refer to Note 2 for relevant disclosures
Expected Rates of Return For Various Asset Classes
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
0% 5% 10% 15% 20% 25% 30% 35% 40%Expected Risk
Exp
ecte
d To
tal R
etur
n
Cash
InflationLinked Bonds
Non-US Fixed Income
(hedged)
Core US Fixed Income
Real Estate
High Yield Debt
Emerging Market Debt
US Equities
Non-US Equities
Commodities
Emerging Equities
Private Equity
-21-
Please refer to N
ote 2 for relevant disclosures.
RIS
K-A
DJU
STE
D R
ETU
RN
S
Leverage-Adjusted E
xpected Excess R
eturns (S
tandardized to the Risk Level of the S
&P
500)
0% 5%
10%
15%
20%
25%
Core US FixedIncome
Inflation LinkedBonds
High Yield Debt
Non-US FixedIncome (hedged)
Emerging MarketDebt
US Equities
Non-US Equities
Emerging Equities
Private Equity
Real Estate
Commodities
Asset C
lass
Expected Excess Return
- 22 -
GROWTH INFLATION
• Equities• EM Debt Spreads• Commodities• Corporate Spreads
RISING
FALLING • Nominal Bonds• Inflation-Linked Bonds
• Inflation-Linked Bonds• Commodities• EM Debt Spreads
• Equities• Nominal Bonds
25% of Risk 25% of Risk
25% of Risk 25% of Risk
CORRELATIONS OF ASSETS TO ENVIRONMENTS ARE MORE STABLE THAN ASSET TO ASSET CORRELATIONS
Please refer to Note 3 for relevant disclosures
Rolling 3-Year Correlation of European Stocks and Nominal Bonds
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
0.80
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
- 23 -
HISTORICAL PERFORMANCE ACROSS ECONOMIC ENVIRONMENTSAsset Class Return-to-Risk Ratios in Economic Environments vs. Long-Term Averages
(1970 – Present)*
Please refer to Note 4 for relevant disclosures. *Corporate Spread returns are from Jan 1973- June 2009. EMD Spreads are from Feb 1976-June 2009. All other assets are Jan 1970-June 2009.
Rising Growth
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
Equities NominalBonds
IL Bonds Commodities CorporateSpreads
EMDSpreads
Rising Inflation
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
Equities NominalBonds
IL Bonds Commodities CorporateSpreads
EMDSpreads
Falling Growth
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
Equities NominalBonds
IL Bonds Commodities CorporateSpreads
EMDSpreads
Falling Inflation
-0.60
-0.40
-0.20
0.00
0.20
0.40
0.60
Equities NominalBonds
IL Bonds Commodities CorporateSpreads
EMDSpreads
- 24 -
BUILDING THE BEST ALPHA PORTFOLIO
� Isolate the Alpha
� Separate alpha from beta decision: find good alpha wherever you can
� Strip out systematic biases
� Assess the Alpha
� Demonstrated market skill� Consistent people and process� Diversification and symmetry (long and short)� No systematic bias� Long, meaningful track records� Robust risk controls
� Allocate Risk in the Context of Your Portfolio
� Allocate risk, not capital, to maximize diversification� Emphasize correlation as much as ratio� Size allocation to have an impact
- 25 -
Please refer to Note 5 for relevant disclosures. Data are shown net of fees. Past results are not necessarily indicative of future results. Period analyzed ends March 2009.
UNCORRELATED MANAGERS ARE BETTER DIVERSIFIERS AND BETTER PERFORMERS
Hedge Fund Performance Pre-Crisis (thru 6/07) and in Crisis (7/07-3/09)Average Annualized Excess Returns
-25%
-20%
-15%
-10%
-5%
0%
5%
10%
0 to 0.3 0.3 to 0.5 0.5 to 0.6 0.6 to 0.8 0.8 to 1
(330 Managers) (687 Managers) (541 Managers) (694 Managers) (195 Managers)Pre-Crisis Correlation to Beta
Ave
rage
Ann
ualiz
ed E
xces
s R
etur
ns
Pre-Crisis Crisis
- 26 -
Please refer to Note 6 for relevant disclosures on expected performance. Expectations are based on Bridgewater Associates’ understanding of global markets. There is no guarantee that the results shown can or will be achieved.
BREADTH OF OPPORTUNITY IS KEY
Traditional Alpha(e.g. Bond Manager)
Diversified Alpha
Government-Related
Securitized
Corporate
Treasuries
High Conviction Positions: 6Correlation Assumption: 0.25Exp Individual Mkt IR: 0.35Total Strategy Exp IR: 0.55
1 2 3 45
12
2627
18
8990
28
17
22
80
88
86
87
81
83
82
84
85
2325
24
2019
16
1110
9
8
21
91-99 DurationManagement
Relative Country Bond
Positioning
Equities
29-49
50-61
Commodities
DevelopedFX
EMDILBs
Emerging FX
62-79
6-7
13-15
High Conviction Positions: 20Correlation Assumption: 0.05Exp Individual Mkt IR: 0.35Total Strategy Exp IR: 1.1
- 27 -
Please refer to Note 7 for relevant disclosures
ALPHA
+
+
=
=`
BETA TOTAL PORTFOLIOD
IVE
RS
IFIE
DC
ON
VE
NTI
ON
AL
TIMELESSLY IMPORTANT PRINCIPLES
- 28 -
Disclosures
Please read the following notes and disclosures as they provide important information and context for the research and performance presented herein. Additional information is available upon request except where the proprietary nature of the information precludes its dissemination.
- 29 -
NOTESNote 1 : For the top chart, the data used to calculate the performance of the “Top 30 Managers” in the charts comes from the eVestment Alliance database and is rolling annual data. The chart reports the average returns of the 30 managers whose benchmarks were available with the most AUM as of June 30, 2009. All U.S. fixed income managers that submit data to eVestment Alliance are included in the analysis except where omission of returns by the managers necessitates exclusion. Corporate spread changes are shown on an inverted basis to reflect the inverse relationship between the yields and prices of bonds. Both return streams are shown on a rolling one-year basis.
For the bottom chart, returns are shown through the most recent quarter end for the CSFB/Tremont Hedge Fund index and Bridgewater’s proprietary index of beta streams. Beta streams are based on representative indices; where indices are not available, proprietary indices, based on Bridgewater’s understanding of hedge fund strategies and global financial markets, are used.
Note 2 : Based on return and risk expectations from an independent study by Rocaton, a third party consultant.
Note 3 : For illustrative purposes only. The example does not necessarily indicate the actual historical or current implementation of Bridgewater’s strategies.
Note 4 : A rising (falling) inflation month is defined as a month in which the current rate of inflation is greater (lower) than the 12-month moving average rate of inflation. A rising (falling) growth month is defined as a month in which the current rate of real GDP growth is greater (lower) than the 12-month moving average rate of real GDP growth.
Note 5 : Manager returns are net of fees and are based on Lipper Tass Hedge Fund Manager data. Lipper is a Reuters Company. Copyright 2009 © Reuters. All managers with a 5 year track record, reporting results after June 2007 are included in the analysis. Correlation for each manager is the maximum absolute correlation of returns with 13 different benchmarks from the fund’s inception through June 2007. Pre-crisis period is defined to last through June 2007. Crisis period is defined as starting in July 2007.
Note 6 : For illustrative purposes only. The example does not necessarily indicate the actual historical or current implementation of Bridgewater’s strategies. “High Conviction Positions”reflect the assumption that at any point in time, it is reasonable to assume that a manager will have sizable positions in 25% - 50% of the markets traded. Expected correlation assumption and individual market information ratio are hypothetical and are for illustrative purposes only. “Total Strategy Expected Information Ratio” is calculated using simple portfolio math. The “Traditional Alpha” pie chart is used as an illustration of a hypothetical active risk allocation. The “Diversified Alpha Mandate” pie chart is used as an illustration of a hypothetical diversified alpha strategy risk allocation and is based on the Bridgewater Pure Alpha Strategy.
Note 7 : For illustrative purposes only. The example does not necessarily indicate the actual historical or current implementation of Bridgewater’s strategies. Diversified beta portfolio is based on Bridgewater’s All Weather strategy.
- 30 -
This page contains the allocation information for the historical simulation of the Conventional Dutch Portfolio, from 1970 onwards, as well as forward looking assumptions for expected returns, volatility, tracking error, and correlations used in this analysis. The portfolio capital allocation weights (illustrated below) are estimates based either upon Bridgewater Associates’ understanding of standard asset allocation (which may change without notice) or information provided by or publicly available from the recipient of this presentation. Asset class returns are actual market returns where available and otherwise a proxy index constructed based on Bridgewater Associates understanding of global financial markets. Information regarding specific indices and simulation methods used for proxies is available upon request (except where the proprietary nature of information precludes its dissemination). Results are hypothetical or simulated and gross of fees unless otherwise indicated. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
CONVENTIONAL DUTCH PORTFOLIO NOTES
AlphaAlphaAlphaAlphaAlphaAlphaAssetAssetAssetAssetAssetAssetImmunizing OverlayImmunizing OverlayLiabilityLiability
Equ
ities
Equ
ities
Hed
ge F
und
Infla
tion-
Link
ed B
onds
Nom
inal
Bon
ds
Rea
l Est
ate
Com
mod
ities
Equ
ities
Equ
ities
Infla
tion-
Link
ed B
onds
Nom
inal
Bon
ds
Rea
l Est
ate
Infla
tion-
Link
ed H
edge
Nom
inal
Hed
ge
Infla
tion-
Link
ed L
iabi
litie
s
Nom
inal
Lia
bilit
ies
Ger
man
Priv
ate
Equ
ity /
VC
(Ext
ende
d)
Wor
ld E
quiti
es (
Exte
nded
)
Cas
h
Eur
opea
n IL
Bon
ds (
Ext
ende
d)
Eur
opea
n G
ov't
Bon
ds (
Ext
ende
d)
Eur
olan
d R
eal E
stat
e (E
xten
ded)
Com
mod
ities
(A
IG -
Ext
ende
d)
Ger
man
Priv
ate
Equ
ity /
VC
(Ext
ende
d)
Wor
ld E
quiti
es (
Exte
nded
)
Eur
opea
n IL
Bon
ds (
Ext
ende
d)
Eur
opea
n G
ov't
Bon
ds (
Ext
ende
d)
Eur
olan
d R
eal E
stat
e (E
xten
ded)
Eur
opea
n In
flatio
n-lin
ked
Liab
ilitie
s
Eur
opea
n N
omin
al L
iabi
litie
s
Eur
opea
n In
flatio
n-lin
ked
Liab
ilitie
s
Eur
opea
n N
omin
al L
iabi
litie
s
Exposure TypeAsset Class Exposure Allocation Return Volatility Ratio
Alpha Equities German Private Equity / VC (Extended) 3.83% 2.50% 10.00% 0.25 1.00 0.40 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Alpha Equities World Equities (Extended) 34.50% 1.80% 6.00% 0.30 0.40 1.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Alpha Hedge Fund Cash 6.17% 4.90% 7.00% 0.70 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Alpha Inflation-Linked Bonds European IL Bonds (Extended) 2.33% 0.25% 1.00% 0.25 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00 0.00 0.00 0.00 0.00
Alpha Nominal Bonds European Gov't Bonds (Extended) 39.33% 0.50% 2.00% 0.25 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00 0.00 0.00 0.00
Alpha Real Estate Euroland Real Estate (Extended) 11.00% 1.50% 6.00% 0.25 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00 0.00 0.00
Asset Commodities Commodities (AIG - Extended) 2.67% 4.75% 18.99% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.20 0.20 0.20 -0.20 0.40 0.20 -0.20 0.20 -0.20
Asset Equities German Private Equity / VC (Extended) 3.83% 8.50% 34.00% 0.25 0.40 0.40 0.00 0.00 0.00 0.00 0.20 1.00 0.75 -0.15 0.15 0.30 -0.20 0.20 -0.15 0.15
Asset Equities World Equities (Extended) 34.50% 4.86% 16.21% 0.30 0.40 0.40 0.00 0.00 0.00 0.00 0.20 0.75 1.00 -0.15 0.15 0.30 -0.20 0.20 -0.15 0.15
Asset Inflation-Linked Bonds European IL Bonds (Extended) 2.33% 1.53% 6.12% 0.25 0.00 0.00 0.00 0.40 0.00 0.00 0.20 -0.15 -0.15 1.00 0.20 0.40 1.00 0.20 1.00 0.20
Asset Nominal Bonds European Gov't Bonds (Extended) 39.33% 1.65% 6.59% 0.25 0.00 0.00 0.00 0.00 0.40 0.00 -0.20 0.15 0.15 0.20 1.00 0.40 0.20 1.00 0.20 1.00
Asset Real Estate Euroland Real Estate (Extended) 11.00% 6.35% 25.39% 0.25 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.30 0.30 0.40 0.40 1.00 0.40 0.40 0.40 0.40
Immunizing OverlayInflation-Linked Hedge European Inflation-linked Liabilities 50.00% 1.56% 6.26% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.20 -0.20 -0.20 1.00 0.20 0.40 1.00 0.20 1.00 0.20
Immunizing OverlayNominal Hedge European Nominal Liabilities 50.00% 3.57% 14.29% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 -0.20 0.20 0.20 0.20 1.00 0.40 0.20 1.00 0.20 1.00
Liability Inflation-Linked Liabilities European Inflation-linked Liabilities -50.00% 1.56% 6.26% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.20 -0.15 -0.15 1.00 0.20 0.40 1.00 0.20 1.00 0.20
Liability Nominal Liabilities European Nominal Liabilities -50.00% 3.57% 14.29% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 -0.20 0.15 0.15 0.20 1.00 0.40 0.20 1.00 0.20 1.00
Exposure Type
Asset Class
Exposure
Corelation matrix, Sharpe ratios and return expecations based on Bridgew ater assumptions. Beta volatilities estimated using historical data from the period 02/01/1970 - 08/01/2009.
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- 31 -
This page contains the allocation information for the historical simulation of the Conventional European Portfolio, from 1970 onwards, as well as forward looking assumptions for expected returns, volatility, tracking error, and correlations used in this analysis. The portfolio capital allocation weights (illustrated below) are estimates based either upon Bridgewater Associates’ understanding of standard asset allocation (which may change without notice) or information provided by or publicly available from the recipient of this presentation. Asset class returns are actual market returns where available and otherwise a proxy index constructed based on Bridgewater Associates understanding of global financial markets. Information regarding specific indices and simulation methods used for proxies is available upon request (except where the proprietary nature of information precludes its dissemination). Results are hypothetical or simulated and gross of fees unless otherwise indicated. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
CONVENTIONAL EUROPEAN PORTFOLIO NOTES
AlphaAlphaAlphaAlphaAlphaAlphaAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetImmunizing OverlayImmunizing OverlayLiabilityLiability
Cor
pora
te B
onds
Equi
ties
Equi
ties
Infla
tion-
Link
ed B
onds
Nom
inal
Bon
ds
Rea
l Est
ate
Cor
pora
te B
onds
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Equi
ties
Equi
ties
Infla
tion-
Link
ed B
onds
Nom
inal
Bon
ds
Rea
l Est
ate
Infla
tion-
Link
ed H
edge
Nom
inal
Hed
ge
Infla
tion-
Link
ed L
iabi
litie
s
Nom
inal
Lia
bilit
ies
Ger
man
y C
orpo
rate
Bon
ds (
Ext
ende
d)
Eur
opea
n E
quiti
es (
Ext
ende
d)
Wor
ld E
quiti
es E
x-E
urop
e (E
xten
ded)
Eur
opea
n IL
Bon
ds (
Ext
ende
d)
Eur
opea
n G
ov't
Bon
ds (
Exte
nded
)
Eur
olan
d R
eal E
stat
e (E
xten
ded)
Ger
man
y C
orpo
rate
Bon
ds (
Ext
ende
d)
AU
Dvs
EU
R
CA
Dvs
EU
R
HK
Dvs
EU
R
JPYv
sEU
R
NZ
Dvs
EU
R
SG
Dvs
EUR
US
Dvs
EU
R
Eur
opea
n E
quiti
es (
Ext
ende
d)
Wor
ld E
quiti
es E
x-E
urop
e (E
xten
ded)
Eur
opea
n IL
Bon
ds (
Ext
ende
d)
Eur
opea
n G
ov't
Bon
ds (
Exte
nded
)
Eur
olan
d R
eal E
stat
e (E
xten
ded)
Eur
opea
n In
flatio
n-lin
ked
Liab
ilitie
s
Eur
opea
n N
omin
al L
iabi
litie
s
Eur
opea
n In
flatio
n-lin
ked
Liab
ilitie
s
Eur
opea
n N
omin
al L
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s
Exposure TypeAsset Class Exposure Allocation Return Volatility Ratio
Alpha Corporate Bonds Germany Corporate Bonds (Extended) 10.00% 0.90% 3.00% 0.30 1.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Alpha Equities European Equities (Extended) 20.00% 1.80% 6.00% 0.30 0.00 1.00 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Alpha Equities World Equities Ex-Europe (Extended) 25.00% 1.80% 6.00% 0.30 0.00 0.40 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Alpha Inflation-Linked Bonds European IL Bonds (Extended) 5.00% 0.30% 1.00% 0.30 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00 0.00 0.00 0.00 0.00
Alpha Nominal Bonds European Gov't Bonds (Extended) 30.00% 0.90% 3.00% 0.30 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00 0.00 0.00 0.00
Alpha Real Estate Euroland Real Estate (Extended) 10.00% 1.80% 6.00% 0.30 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00 0.00 0.00 0.00
Asset Corporate Bonds Germany Corporate Bonds (Extended) 10.00% 2.01% 8.06% 0.25 0.40 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.30 0.30 0.00 0.50 0.30 0.00 0.70 0.00 0.50
Asset Currency AUDvsEUR 0.92% 0.00% 12.01% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency CADvsEUR 1.40% 0.00% 11.88% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency HKDvsEUR 0.29% 0.00% 11.11% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency JPYvsEUR 4.08% 0.00% 12.92% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency NZDvsEUR 0.04% 0.00% 10.74% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency SGDvsEUR 0.15% 0.00% 10.18% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency USDvsEUR 18.13% 0.00% 12.18% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Equities European Equities (Extended) 20.00% 4.65% 18.62% 0.25 0.00 0.40 0.40 0.00 0.00 0.00 0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.75 -0.20 0.20 0.40 -0.20 0.20 -0.20 0.20
Asset Equities World Equities Ex-Europe (Extended) 25.00% 4.79% 15.96% 0.30 0.00 0.40 0.40 0.00 0.00 0.00 0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.75 1.00 -0.15 0.15 0.30 -0.20 0.20 -0.15 0.15
Asset Inflation-Linked Bonds European IL Bonds (Extended) 5.00% 1.53% 6.12% 0.25 0.00 0.00 0.00 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.20 -0.15 1.00 0.20 0.40 1.00 0.20 1.00 0.20
Asset Nominal Bonds European Gov't Bonds (Extended) 30.00% 1.65% 6.59% 0.25 0.00 0.00 0.00 0.00 0.40 0.00 0.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.15 0.20 1.00 0.40 0.20 1.00 0.20 1.00
Asset Real Estate Euroland Real Estate (Extended) 10.00% 6.35% 25.39% 0.25 0.00 0.00 0.00 0.00 0.00 0.40 0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.30 0.40 0.40 1.00 0.40 0.40 0.40 0.40
Immunizing OverlayInflation-Linked Hedge European Inflation-linked Liabilities 25.00% 1.56% 6.26% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.20 -0.20 1.00 0.20 0.40 1.00 0.20 1.00 0.20
Immunizing OverlayNominal Hedge European Nominal Liabilities 75.00% 3.57% 14.29% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.70 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.20 0.20 1.00 0.40 0.20 1.00 0.20 1.00
Liability Inflation-Linked Liabilities European Inflation-linked Liabilities -25.00% 1.56% 6.26% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.20 -0.15 1.00 0.20 0.40 1.00 0.20 1.00 0.20
Liability Nominal Liabilities European Nominal Liabilities -75.00% 3.57% 14.29% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.50 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.15 0.20 1.00 0.40 0.20 1.00 0.20 1.00
Exposure Type
Asset Class
Exposure
Corelation matrix, Sharpe ratios and return expecations based on Bridgew ater assumptions. Beta volatilities estimated using historical data from the period 02/01/1970 - 08/01/2009.
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- 32 -
This page contains the allocation information for the historical simulation of the Conventional U.S. Portfolio, from 1970 onwards, as well as forward looking assumptions for expected returns, volatility, tracking error, and correlations used in this analysis. The portfolio capital allocation weights (illustrated below) are estimates based either upon Bridgewater Associates’ understanding of standard asset allocation (which may change without notice) or information provided by or publicly available from the recipient of this presentation. Asset class returns are actual market returns where available and otherwise a proxy index constructed based on Bridgewater Associates understanding of global financial markets. Information regarding specific indices and simulation methods used for proxies is available upon request (except where the proprietary nature of information precludes its dissemination). Results are hypothetical or simulated and gross of fees unless otherwise indicated. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
AssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAsset
Com
mod
ities
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
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y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Equ
ities
Equ
ities
Equ
ities
Equ
ities
Infla
tion-
Link
ed B
onds
Nom
inal
Bon
ds
Rea
l Est
ate
Com
mod
ities
(G
SC
I - E
xten
ded)
AU
Dvs
US
D
CA
Dvs
US
D
CH
Fvs
US
D
DK
Kvs
US
D
EU
Rvs
US
D
GB
Pvs
US
D
HK
Dvs
US
D
JPY
vsU
SD
NO
Kvs
US
D
NZ
Dvs
US
D
SE
Kvs
US
D
SG
Dvs
US
D
U.S
. Lar
ge-C
ap E
quiti
es (
Ext
ende
d)
U.S
. Priv
ate
Equ
ity /
VC
(E
xten
ded)
U.S
. Sm
all-C
ap E
quiti
es (
Ext
ende
d)
Wor
ld E
quiti
es E
x-U
S (
Ext
ende
d)
U.S
. IL
Bon
ds (
Ext
ende
d)
U.S
. Bon
d A
ggre
gate
(E
xten
ded)
U.S
. Rea
l Est
ate
(Ext
ende
d)
Exposure TypeAsset Class Exposure Allocation Return Volatility Ratio
Asset Commodities Commodities (GSCI - Extended) 2.00% 6.00% 23.99% 0.25 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.20 0.20 0.20 0.20 -0.20 0.40
Asset Currency AUDvsUSD 0.69% 0.00% 11.48% 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency CADvsUSD 1.05% 0.00% 6.40% 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency CHFvsUSD 0.91% 0.00% 14.03% 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency DKKvsUSD 0.08% 0.00% 12.93% 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency EURvsUSD 4.26% 0.00% 13.12% 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency GBPvsUSD 3.19% 0.00% 11.72% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency HKDvsUSD 0.22% 0.00% 5.11% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency JPYvsUSD 3.05% 0.00% 13.56% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency NOKvsUSD 0.11% 0.00% 11.72% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency NZDvsUSD 0.03% 0.00% 14.60% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency SEKvsUSD 0.30% 0.00% 12.51% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency SGDvsUSD 0.11% 0.00% 5.43% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Equities U.S. Large-Cap Equities (Extended) 40.00% 4.20% 16.81% 0.25 0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 1.00 1.00 0.75 -0.20 0.20 0.40
Asset Equities U.S. Private Equity / VC (Extended) 3.00% 5.79% 23.16% 0.25 0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 1.00 1.00 0.75 -0.20 0.20 0.40
Asset Equities U.S. Small-Cap Equities (Extended) 5.00% 5.06% 20.22% 0.25 0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 1.00 1.00 0.75 -0.20 0.20 0.40
Asset Equities World Equities Ex-US (Extended) 14.00% 5.27% 17.56% 0.30 0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.75 0.75 0.75 1.00 -0.15 0.15 0.30
Asset Inf lation-Linked Bonds U.S. IL Bonds (Extended) 3.00% 1.43% 5.73% 0.25 0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.20 -0.20 -0.20 -0.15 1.00 0.20 0.40
Asset Nominal Bonds U.S. Bond Aggregate (Extended) 23.00% 1.62% 6.49% 0.25 -0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.20 0.20 0.15 0.20 1.00 0.40
Asset Real Estate U.S. Real Estate (Extended) 5.00% 4.73% 18.92% 0.25 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.40 0.30 0.40 0.40 1.00
Exposure Type
Asset Class
Exposure
Corelation matrix, Sharpe ratios and return expecations based on Bridgew ater assumptions. Beta volatilities estimated using historical data from the period 01/01/1970 - 08/01/2009.
CONVENTIONAL UNITED STATES PORTFOLIO NOTES
- 33 -
This page contains the allocation information for the historical simulation of the Endowment and Foundation portfolio, from 1970 onwards, as well as forward looking assumptions for expected returns, volatility, tracking error, and correlations used in this analysis. The portfolio capital allocation weights (illustrated below) are estimates based either upon Bridgewater Associates’ understanding of standard asset allocation (which may change without notice) or information provided by or publicly available from the recipient of this presentation. Asset class returns are actual market returns where available and otherwise a proxy index constructed based on Bridgewater Associates understanding of global financial markets. Information regarding specific indices and simulation methods used for proxies is available upon request (except where the proprietary nature of information precludes its dissemination). Results are hypothetical or simulated and gross of fees unless otherwise indicated. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
AlphaAlphaAlphaAlphaAlphaAlphaAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAsset
Equ
ities
Equ
ities
Equ
ities
Hed
ge F
und
Nom
inal
Bon
ds
Rea
l Est
ate
Com
mod
ities
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Equ
ities
Equ
ities
Equ
ities
Nom
inal
Bon
ds
Rea
l Est
ate
U.S
. Equ
ities
(E
xten
ded)
U.S
. Priv
ate
Equ
ity /
VC
(E
xten
ded)
Wor
ld E
quiti
es (
Ext
ende
d)
Cas
h
U.S
. Bon
d A
ggre
gate
(E
xten
ded)
U.S
. Rea
l Est
ate
(Ext
ende
d)
Com
mod
ities
(G
SC
I - E
xten
ded)
AU
Dvs
US
D
CA
Dvs
US
D
CH
Fvs
US
D
DK
Kvs
US
D
EU
Rvs
US
D
GB
Pvs
US
D
HK
Dvs
US
D
JPY
vsU
SD
NO
Kvs
US
D
NZ
Dvs
US
D
SE
Kvs
US
D
SG
Dvs
US
D
U.S
. Equ
ities
(E
xten
ded)
U.S
. Priv
ate
Equ
ity /
VC
(E
xten
ded)
Wor
ld E
quiti
es (
Ext
ende
d)
U.S
. Bon
d A
ggre
gate
(E
xten
ded)
U.S
. Rea
l Est
ate
(Ext
ende
d)
Exposure TypeAsset Class Exposure Allocation Return Volatility Ratio
Alpha Equities U.S. Equities (Extended) 10.00% 1.00% 4.00% 0.25 1.00 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.40 0.00 0.00
Alpha Equities U.S. Private Equity / VC (Extended) 15.00% 2.50% 10.00% 0.25 0.40 1.00 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.40 0.00 0.00
Alpha Equities World Equities (Extended) 20.00% 1.80% 6.00% 0.30 0.40 0.40 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.40 0.00 0.00
Alpha Hedge Fund Cash 25.00% 4.90% 7.00% 0.70 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Alpha Nominal Bonds U.S. Bond Aggregate (Extended) 5.00% 0.50% 2.00% 0.25 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.00
Alpha Real Estate U.S. Real Estate (Extended) 5.00% 1.50% 6.00% 0.25 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40
Asset Commodities Commodities (GSCI - Extended) 5.00% 5.93% 23.72% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.20 0.20 -0.20 0.40
Asset Currency AUDvsUSD 0.50% 0.00% 11.50% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency CADvsUSD 0.76% 0.00% 6.41% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency CHFvsUSD 0.66% 0.00% 14.06% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency DKKvsUSD 0.06% 0.00% 12.95% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency EURvsUSD 3.10% 0.00% 13.14% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency GBPvsUSD 2.32% 0.00% 11.71% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency HKDvsUSD 0.16% 0.00% 5.12% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency JPYvsUSD 2.22% 0.00% 13.57% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency NOKvsUSD 0.08% 0.00% 11.71% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency NZDvsUSD 0.02% 0.00% 14.62% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency SEKvsUSD 0.22% 0.00% 12.50% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency SGDvsUSD 0.08% 0.00% 5.43% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00
Asset Equities U.S. Equities (Extended) 28.00% 4.18% 16.71% 0.25 0.40 0.40 0.40 0.00 0.00 0.00 0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 1.00 0.75 0.20 0.40
Asset Equities U.S. Private Equity / VC (Extended) 15.00% 5.78% 23.12% 0.25 0.40 0.40 0.40 0.00 0.00 0.00 0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 1.00 0.75 0.20 0.40
Asset Equities World Equities (Extended) 20.00% 4.85% 16.16% 0.30 0.40 0.40 0.40 0.00 0.00 0.00 0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.75 0.75 1.00 0.15 0.30
Asset Nominal Bonds U.S. Bond Aggregate (Extended) 10.00% 1.62% 6.49% 0.25 0.00 0.00 0.00 0.00 0.40 0.00 -0.20 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.20 0.15 1.00 0.40
Asset Real Estate U.S. Real Estate (Extended) 5.00% 4.70% 18.79% 0.25 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.40 0.30 0.40 1.00
Exposure Type
Asset Class
Exposure
Corelation matrix, Sharpe ratios and return expecations based on Bridgew ater assumptions. Beta volatilities estimated using historical data from the period 01/01/1970 - 06/01/2009.
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CONVENTIONAL U.S. ENDOWMENT PORTFOLIO NOTES
- 34 -
This page contains the allocation information for the historical simulation of the Conventional British Portfolio, from 1970 onwards, as well as forward looking assumptions for expected returns, volatility, tracking error, and correlations used in this analysis. The portfolio capital allocation weights (illustrated below) are estimates based either upon Bridgewater Associates’ understanding of standard asset allocation (which may change without notice) or information provided by or publicly available from the recipient of this presentation. Asset class returns are actual market returns where available and otherwise a proxy index constructed based on Bridgewater Associates understanding of global financial markets. Information regarding specific indices and simulation methods used for proxies is available upon request (except where the proprietary nature of information precludes its dissemination). Results are hypothetical or simulated and gross of fees unless otherwise indicated. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
CONVENTIONAL BRITISH PORTFOLIO NOTES
AssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAsset
Cor
pora
te B
onds
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Equ
ities
Equ
ities
Infla
tion-
Link
ed B
onds
Nom
inal
Bon
ds
Rea
l Est
ate
U.K
. Cor
pora
te B
onds
(E
xten
ded)
AU
Dvs
GB
P
CA
Dvs
GB
P
CH
Fvs
GB
P
DK
Kvs
GB
P
EU
Rvs
GB
P
HK
Dvs
GB
P
JPY
vsG
BP
NO
Kvs
GB
P
NZ
Dvs
GB
P
SE
Kvs
GB
P
SG
Dvs
GB
P
US
Dvs
GB
P
U.K
. Equ
ities
(E
xten
ded)
Wor
ld E
quiti
es (
Ext
ende
d)
U.K
. IL
Bon
ds (
Ext
ende
d)
Gre
at B
ritai
n G
ov't
Bon
ds (
Ext
ende
d)
Eur
olan
d R
eal E
stat
e (E
xten
ded)
Exposure TypeAsset Class Exposure Allocation Return Volatility Ratio
Asset Corporate Bonds U.K. Corporate Bonds (Extended) 10.00% 3.00% 12.00% 0.25 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.40 0.30 0.00 0.70 0.30
Asset Currency AUDvsGBP 0.75% 0.00% 11.40% 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency CADvsGBP 1.14% 0.00% 11.64% 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency CHFvsGBP 0.99% 0.00% 11.95% 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency DKKvsGBP 0.09% 0.00% 9.73% 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency EURvsGBP 14.65% 0.00% 10.03% 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency HKDvsGBP 0.24% 0.00% 11.56% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency JPYvsGBP 3.33% 0.00% 15.11% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency NOKvsGBP 0.12% 0.00% 8.47% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency NZDvsGBP 0.03% 0.00% 10.23% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency SEKvsGBP 0.33% 0.00% 8.74% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency SGDvsGBP 0.12% 0.00% 10.84% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency USDvsGBP 14.79% 0.00% 12.19% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00
Asset Equities U.K. Equities (Extended) 30.00% 5.12% 20.50% 0.25 0.40 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.75 -0.20 0.20 0.30
Asset Equities World Equities (Extended) 30.00% 4.86% 16.20% 0.30 0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.75 1.00 -0.15 0.15 0.30
Asset Inf lation-Linked Bonds U.K. IL Bonds (Extended) 10.00% 2.13% 8.53% 0.25 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 -0.20 -0.15 1.00 0.20 0.30
Asset Nominal Bonds Great Britain Gov't Bonds (Extended) 10.00% 2.46% 9.84% 0.25 0.70 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.15 0.20 1.00 0.30
Asset Real Estate Euroland Real Estate (Extended) 10.00% 6.35% 25.39% 0.25 0.30 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.30 0.30 0.30 0.30 1.00
Exposure TypeCorelation matrix, Sharpe ratios and return expecations based on Bridgew ater assumptions. Beta volatilities estimated using historical data from the period 01/01/1970 - 08/01/2009.
Asset Class
Exposure
- 35 -
This page contains the allocation information for the historical simulation of the Conventional Sovereign Wealth Fund portfolio, from 1970 onwards, as well as forward looking assumptions for expected returns, volatility, tracking error, and correlations used in this analysis. The portfolio capital allocation weights (illustrated below) are estimates based either upon Bridgewater Associates’ understanding of standard asset allocation (which may change without notice) or information provided by or publicly available from the recipient of this presentation. Asset class returns are actual market returns where available and otherwise a proxy index constructed based on Bridgewater Associates understanding of global financial markets. Information regarding specific indices and simulation methods used for proxies is available upon request (except where the proprietary nature of information precludes its dissemination). Results are hypothetical or simulated and gross of fees unless otherwise indicated. HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
CONVENTIONAL SWF PORTFOLIO NOTES
AssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAssetAsset
Com
mod
ities
Cor
pora
te B
onds
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Cur
renc
y
Equ
ities
Equ
ities
Equ
ities
Equ
ities
Equ
ities
Equ
ities
Equ
ities
Equ
ities
Infla
tion-
Link
ed B
onds
Nom
inal
Bon
ds
Com
mod
ities
(A
IG -
Ext
ende
d)
U.S
. Cor
pora
te B
onds
(E
xten
ded)
AU
Dvs
US
D
CA
Dvs
US
D
EU
Rvs
US
D
GB
Pvs
US
D
JPY
vsU
SD
Aus
tral
ian
Equ
ities
(E
xten
ded)
Can
adia
n E
quiti
es (
Ext
ende
d)
Fre
nch
Equ
ities
(E
xten
ded)
Ger
man
Equ
ities
(E
xten
ded)
Italia
n E
quiti
es (
Ext
ende
d)
Japa
n E
quiti
es (
Ext
ende
d)
U.K
. Equ
ities
(E
xten
ded)
U.S
. Equ
ities
(E
xten
ded)
U.S
. IL
Bon
ds (
Ext
ende
d)
U.S
. Gov
't B
onds
(E
xten
ded)
Exposure TypeAsset Class Exposure Allocation Return Volatility Ratio
Asset Commodities Commodities (AIG - Extended) 2.00% 4.75% 18.99% 0.25 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 0.20 -0.20
Asset Corporate Bonds U.S. Corporate Bonds (Extended) 8.00% 2.13% 8.51% 0.25 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.30 0.30 0.30 0.30 0.30 0.30 0.30 0.40 0.00 0.70
Asset Currency AUDvsUSD 0.00% 0.00% 11.49% 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency CADvsUSD 0.00% 0.00% 6.40% 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency EURvsUSD 0.00% 0.00% 12.81% 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency GBPvsUSD 0.00% 0.00% 11.73% 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Currency JPYvsUSD 0.00% 0.00% 13.58% 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Asset Equities Australian Equities (Extended) 4.40% 5.15% 20.60% 0.25 0.20 0.30 0.00 0.00 0.00 0.00 0.00 1.00 0.75 0.75 0.75 0.75 0.75 0.75 0.75 -0.15 0.15
Asset Equities Canadian Equities (Extended) 4.40% 4.92% 19.69% 0.25 0.20 0.30 0.00 0.00 0.00 0.00 0.00 0.75 1.00 0.75 0.75 0.75 0.75 0.75 0.75 -0.15 0.15
Asset Equities French Equities (Extended) 1.47% 6.02% 24.09% 0.25 0.20 0.30 0.00 0.00 0.00 0.00 0.00 0.75 0.75 1.00 0.75 0.75 0.75 0.75 0.75 -0.15 0.15
Asset Equities German Equities (Extended) 1.47% 5.89% 23.55% 0.25 0.20 0.30 0.00 0.00 0.00 0.00 0.00 0.75 0.75 0.75 1.00 0.75 0.75 0.75 0.75 -0.15 0.15
Asset Equities Italian Equities (Extended) 1.47% 8.13% 32.50% 0.25 0.20 0.30 0.00 0.00 0.00 0.00 0.00 0.75 0.75 0.75 0.75 1.00 0.75 0.75 0.75 -0.15 0.15
Asset Equities Japan Equities (Extended) 4.40% 6.08% 24.34% 0.25 0.20 0.30 0.00 0.00 0.00 0.00 0.00 0.75 0.75 0.75 0.75 0.75 1.00 0.75 0.75 -0.15 0.15
Asset Equities U.K. Equities (Extended) 4.40% 5.13% 20.51% 0.25 0.20 0.30 0.00 0.00 0.00 0.00 0.00 0.75 0.75 0.75 0.75 0.75 0.75 1.00 0.75 -0.15 0.15
Asset Equities U.S. Equities (Extended) 38.00% 4.19% 16.77% 0.25 0.20 0.40 0.00 0.00 0.00 0.00 0.00 0.75 0.75 0.75 0.75 0.75 0.75 0.75 1.00 -0.20 0.20
Asset Inflation-Linked Bonds U.S. IL Bonds (Extended) 6.00% 1.43% 5.73% 0.25 0.20 0.00 0.00 0.00 0.00 0.00 0.00 -0.15 -0.15 -0.15 -0.15 -0.15 -0.15 -0.15 -0.20 1.00 0.20
Asset Nominal Bonds U.S. Gov't Bonds (Extended) 14.00% 1.65% 6.58% 0.25 -0.20 0.70 0.00 0.00 0.00 0.00 0.00 0.15 0.15 0.15 0.15 0.15 0.15 0.15 0.20 0.20 1.00
Exposure Type
Asset Class
Exposure
Corelation matrix, Sharpe ratios and return expecations based on Bridgew ater assumptions. Beta volatilities estimated using historical data from the period 02/01/1970 - 08/01/2009.
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Bridgewater All Weather Euro Strategy Gross Performance Disclosure:For the period June 1996 (the inception of the strategy) through August 2001 the performance is based on the total return of the Bridgewater All Weather strategy as implemented for Bridgewater's principals and their affiliates and was not fully hedged to the US Dollar. For the period of September 2001 through July 2007 the performance shown is the actual total returns of the longest running fully funded All Weather account (which is based in and fully-hedged to the USD). For the period of June 1996 through July 2007 excess returns are calculated by subtracting the cash return of the US repo rate from the total returns. Of note, the All Weather strategy’s target leverage, volatility and return, as well as the asset mix varied from June 1996 to July 2005. For the period of June 1996 through July 2007 to arrive at the total return, the euro cash return is added to the excess returns. The euro cash return is simulated based on Bridgewater’s understanding of euro short-term interest rates. Bridgewater manages additional All Weather portfolios not included in this performance history. For the period August 2007 to the present, performance shown is the actual total returns of the longest running fully-funded All Weather account in EUR at 10% volatility, albeit adjusting target leverage, volatility, return and the asset mix during extreme recessionary or depressionary economic environments. Excess return is calculated by subtracting the euro cash rate from the total return. These returns are considered hypothetical or simulated.
The performance provided is gross of management fees and includes the reinvestment of all interest, gains, and losses. Returns will be reduced by the investment advisory fees and any other expenses that may be incurred in the management of the account. Investment advisory fees are described in Part II of Bridgewater’s Form ADV. No representation is being made that any account will or is likely to achieve returns similar to those shown. Trading in futures is risky and can result in losses as well as profits. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.
Bridgewater All Weather Euro Strategy Net Performance Disclosure:For the period June 1996 (the inception of the strategy) through August 2001 the performance is based on the total return of the Bridgewater All Weather strategy as implemented for Bridgewater's principals and their affiliates and was not fully hedged to the US Dollar. For the period of September 2001 through July 2007 the performance shown is the actual total returns of the longest running fully funded All Weather account (which is based in and fully-hedged to the USD). For the period of June 1996 through July 2007 excess returns are calculated by subtracting the cash return of the US repo rate from the total returns. Of note, the All Weather strategy’s target leverage, volatility and return, as well as the asset mix varied from June 1996 to July 2005. For the period of June 1996 through July 2007 to arrive at the total return, the euro cash return is added to the excess returns. The euro cash return is simulated based on Bridgewater’s understanding of euro short-term interest rates. Bridgewater manages additional All Weather portfolios not included in this performance history. For the period August 2007 to the present, performance shown is the actual total returns of the longest running fully-funded All Weather account in EUR at 10% volatility, albeit adjusting target leverage, volatility, return and the asset mix during extreme recessionary or depressionary economic environments. Excess return is calculated by subtracting the euro cash rate from the total return. These returns are considered hypothetical or simulated.
The performance provided is net of fees and includes the reinvestment of all interest, gains, and losses. The net of fees returns have been calculated using our standard fee schedule for a minimum size account, which are the highest fees we have or would currently charge an account. Investment advisory fees are described in Part II of Bridgewater’s Form ADV. No representation is being made that any account will or is likely to achieve returns similar to those shown. Trading in futures is risky and can result in losses as well as profits. PAST RESULTS ARE NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.Performance as of the current month is estimated and subject to change.
All Weather Simulated Portfolio Note:Prior to June 1996, All Weather is simulated and gross of all fees (including investment management fees). All Weather is constructed using a proprietary mix and weighting of assets. The returns used to construct All Weather are actual market returns where available and Bridgewater Associates' estimates otherwise. Bridgewater Associates' estimates for various market returns are based on Bridgewater Associates' understanding of global financial markets and may change without notice.
In this instance, the All Weather Strategy is hedged to EUR and the benchmark cash return is defined as the euro cash return. To arrive at the total return shown, first, an excess return is calculated by subtracting the USD cash return from All Weather USD denominated total returns and then the euro cash return is added to the excess return of the All Weather strategy. The USD and the euro cash returns are calculated based on USD and euro short-term interest rates respectively. For a description of the limitations of simulated portfolios please see the “Simulated Performance Disclosure” below. The euro cash rate used through the entire history is simulated based on Bridgewater’s understanding of relative cash returns, and is calculated as the lesser of the Euroland t-bill rate times 1.05 and the euro interbank rate. Prior to the inception of the euro in 1999, the cash rate is the calculated as the lesser of the average t-bill rate of Germany, Italy, and France times 1.05 and the respective interbank rates.
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Simulated Performance Disclosure:WHERE SHOWN, HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN INHERENT LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING OR THE COSTS OF MANAGING THE PORTFOLIO. ALSO, SINCE THE TRADES HAVE NOT ACTUALLY BEEN EXECUTED, THE RESULTS MAY HAVE UNDER OR OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFITS OR LOSSES SIMILAR TO THOSE SHOWN.
Terminology: Value added (or excess return) is calculated by subtracting the official returns of each account's specified benchmark from the total return experienced by the account over a given period.
Volatility of value added (or tracking error) refers to the standard deviation of monthly value added over a given time period. Standard deviation of monthly value added is one possible measurement of portfolio risk.
Past value added and past volatility are not necessarily indicative of future value added and future volatility. There can be no assurance that the future value added and future volatility actually reflected in accounts will be at historical levels or levels either specified in the investment objectives or suggested by our forecasts.
Target volatility (or target tracking error) is an indication of the long-term expected volatility of value added.
Sharpe ratio is calculated by dividing the excess return above cash over a given period by the volatility of the excess return during the same period.
Information Ratio is calculated by dividing the excess return above a given benchmark over a given period by the volatility of the excess return during the same period.
Alpha: The risk taken by active managers above and beyond their passive, benchmark-replicating positions.
Beta: The risk in a portfolio that arises from passively holding asset classes.
Portfolio VaR: A measure of the amount of a total portfolio’s risk, taking into consideration correlations within and across asset classes.
Var Share: A measure of the portion of a total portfolio’s risk allocated to a particular return stream when all of its return streams are assumed to be fully correlated to each other.
CoVar Share: A measure of the portion of a total portfolio’s risk allocated to a particular return stream when the cross correlations of all of the return streams are taken into account.
Drawdowns: Where shown, drawdowns are from previous peak.
Expected Performance Disclosure:Where shown, expected performance is based on Bridgewater analysis of market data, quantitative research of the underlying forces that influence asset classes and our active management policies. The performance is for informational and educational purposes only and should not be relied upon as a prediction of future market performance or Bridgewater management performance. Reasonable people may disagree with the assumptions used and expectations developed there from and there is no guarantee the expectations shown can be achieved. Expected performance is considered hypothetical and is subject inherent limitations such as the impact of concurrent economic or geo-political elements not addressed in the analysis and market factors, such as lack of liquidity. Bridgewater Associates is not obligated to provide recipients hereof with updates or changes to such data. Investment decisions should not be made based upon expected results alone. Bridgewater Associates Inc. employees may have long or short positions in and buy or sell securities or derivatives referred to in this research. Those responsible for preparing this research receive compensation based upon various factors, including, among other things, the quality of their work and firm revenues.
Volatility Disclosure:Expected or target volatility is one objective of Bridgewater's active management style. Statements regarding expectations or targets should not be considered a guarantee that such results will be achieved. Expected or target volatility is only one measure of risk. Discussions of risk management processes or theories contained herein should not be construed as a statement that Bridgewater has the ability to control risk or that the investments discussed are low risk.
Individually Managed Accounts:Individually managed account performance will vary based on constraints, funding levels and other factors.
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Research/Outlook Disclosure:This research is based on Bridgewater Associates, Inc. proprietary research and analysis of global markets and investing. Bridgewater research utilizes (in whole and in part) data and information from public, private, and internal sources. Some internally generated information may be considered theoretical in nature and is subject to inherent limitations associated therein. Bridgewater considers the external sources reliable but does not assume responsibility for their accuracy. Major external private and public databases used include the International Monetary Fund, central monetary authorities of G-8 countries, the OECD, the Commerce Department, and external data vendors, such as DRI, DataStream, Compustat, Bloomberg, Lipper Tass, Worldscope and Morningstar.
The views expressed are solely those of Bridgewater Associates, Inc. and are subject to change without notice. Reasonable people may disagree. You should assume that Bridgewater Associates Inc. has a significant financial interest in one or more of the positions and/or securities or derivatives discussed. Bridgewater Associates Inc. employees may have long or short positions in and buy or sell securities or derivatives referred to in this research. Those responsible for preparing this research receive compensation based upon various factors, including, among other things, the quality of their work and firm revenues.
The research in this presentation is for informational and educational purposes only and is not an offer to sell or the solicitation of an offer to buy the securities or other instruments mentioned. It does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual investors. Investors should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, where appropriate, seek professional advice, including tax advice. Investment decisions should not be based solely on simulated, hypothetical or illustrative information. The price and value of the investments referred to in this research and the income therefrom may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Certain transactions, including those involving futures, options, and other derivatives, give rise to substantial risk and are not suitable for all investors. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments.
Bridgewater Associates has no obligation to provide recipients hereof with updates or changes to such data. No part of this material may be (i) copied, photocopied or duplicated in any form by any means or (ii) redistributed without the prior written consent of Bridgewater Associates, Inc.®
