Pavia. October – December 2014

Asset and Portfolio Management

Program: phases of an efficient investment’s process1.Define Investor’s characteristics and goals

2.Strategic Asset Allocation

1. Studying Market’s behavior

2. Forecasting Returns• Macroeconomic Analysis• Fundamental Analysis

3. Portfolio’s Construction• Risk Budget Approach• Optimization

3.Tactical Asset Allocation

1. Tactical Risk Management (ex ante)

2. Technical Analysis

4. Fund selection

1. The process

2. The model for selection

5. Control and Reporting

1. Risk Management (ex post)

2. Performance Analysis

1. Investor’s characteristics and goals

4

1 – Define investor’s characteristics and goals

It is very important to define:

1. Risk Profile

2. Time Horizon

3. Approach (benchmark vs Total Return)

4. Constraints:

• Investible universe (equities, bonds, credits, etc)

• Type of underlying (stocks, mutual funds, Etf, Hedge Funds)

• Maximum / minimum exposure

Define correctly investor’s characteristics is fundamental: if you make a mistake at this level is very difficult that the investor will be satisfied, even if you will be right in forecast returns

Responsability: Private Banker

5

Benchmark driven: the investor choose an index of the market (benchmark), the goal oh the fund manager is try to bet the index (over performance)

1. The strategic asset allocation is actually delegated to the benchmark chosen

2. The asset managers stay concentrated to tactical asset allocation and fund (security) selection

3. NO volatility control over time

4. The hope is that without volatility constraints over long time period the investor get higher returns (Is that true?)

Total Return: without a benchmark asset managers try to maximize expected return given a certain level of risk (Value at Risk). The goal is to achieve extra return vs risk free with a define level of risk (volatility)

• The asset manager control all the process: dynamic asset allocation and fund (security) selection.

• Flexible approach, with 2 explicit goals:

1. volatility control and capital protection (stability of returns)

2. over performance vs risk free (o risk free + X basis points)

1 – Investment’s approach

2. Strategic Asset Allocation

7

Phases of Strategic Asset Allocation

1 – Define Investible universe on a global basis:

1. Monetary Instruments

2. Government bond (1-3 years, 3-5 years, 5-10 years)

3. Corporate Bond (Investment Grade and High Yield) and Emerging Markets Bonds

4. Global Equity (Europe, USA, Japan, Asia ex Japan, Emerging)

5. Commodities

2 – Studying Markets Behavior

• Analysis of Assets classes over a defined time horizon (usually 2 / 5 years, weekly frequency)

• Calculation of annualized statistical indicators (DNA of different Assets Classes)

• Expected returns

• Standard deviations

• Correlations (matrix of interaction among financials activities)

3 – Studying economic and markets environment

1. Macroeconomic analysis

2. Fundamental Analysis

4 – Portfolio’s construction

• Risk Budget Approach (Risk’s constraints and allocation)

• Optimization (Mean Variance and Black and Litterman)

2. Strategic Asset Allocation

Investible Universe and market’s behavior

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1 - Investible Universe

Monetary Unstruments< 12 mesi Euro

Government Bonds US

Germany

Bonds with spreads PIGS

Corporate Bonds (IG)

Risky Assets Global Equitis Commodities

Corporate HY / Emerging Bonds

Capital Protection

Decorelation

Carry

Extra Return

Short Terms Bonds

Passive Mutual Funds

ETFs

Risk Budget

Risk Budget

Risk Budget

Risk Budget

Views

Views

Views

Views

Dynamic Risk Management

Role

Strategical Tactical

Underlying

Active Mutual Funds

ETFs

Active Mutual Funds

ETFs

Driver Exposure

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2 - Markets behavior: what the history tells us

Markets seem «crazy» and irrational in the short term, but this is not true if we consider a longer time horizon:

Each financial activity has owns characteristics (DNA), in terms of

Returns (annualized)

Volatility (annualized)

Interaction with the others (correlation).

In particular the interaction between different assets is more important than the features of a single one. Each portfolio’s risk-return profile is not equivalent to the sum of all the risk-return profiles of the portfolio’s assets (the importance of diversification!).

Markets behavior often express recurring rules

Is on the basis of those rules and those characteristics that is possible to set up solid and efficient portfolios (strategic component).

11

2 - Markets behavior: the numbers

Analysis of Financial’s Activities (DNA)

MonetarioInflation linked

Renta fija AAA Euro

Periféricos Euro

Corporate IG ST Euro

Corporate IG Global

Corporate HY

Deuda Emergente

Renta Variable Global

Commodities

Volatilidad Anualizada

0,1% 4,7% 5,2% 1,5% 1,5% 3,8% 7,8% 6,0% 14,4% 16,2%

Rentabilidad Anualizada

0,9% 7,9% 7,6% 3,8% 3,6% 8,5% 9,2% 11,2% 12,1% -9,7%

Matriz de Correlación

MonetarioInflation linked

Renta f ija AAA Euro

Periféricos Euro

Corporate IG ST Euro

Corporate IG Global

Corporate HY

Deuda Emergente

Renta Variable Global

Commodities

Monetario 100,0% 5,2% 1,4% 20,4% 10,5% 11,4% 4,7% 9,9% 1,8% -9,5%Inflation linked 100,0% 68,8% 15,3% 23,1% 34,9% -13,3% -3,4% -29,6% -11,5%

Renta fija AAA Euro 100,0% 19,2% 45,5% 44,4% -0,3% 3,5% -21,1% -15,7%Periféricos Euro 100,0% 28,8% 19,1% 20,4% 15,1% 13,4% -4,8%

Corporate IG ST Euro 100,0% 82,3% 60,3% 59,0% 19,1% 18,7%Corporate IG Global 100,0% 68,0% 69,0% 16,2% 23,5%

Corporate HY 100,0% 63,1% 41,1% 35,5%Deuda Emergente 100,0% 38,2% 50,3%

Renta Variable Global 100,0% 36,0%Commodities 100,0%

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3 – Studying economic and markets environment

To improve returns for units of risk over time is important to consider also yours views of economic and market environment

To estimate correctly dynamics in financials markets is important to:

Identify a series of investment’s themes (risks factors) that consistently drive returns across global markets and asset classes (long-term valuation, short-term momentum, fund flows, risk premium, macroeconomic policy)

Identify metrics able to describe each investment theme (growth, inflation, multiple, volumes, etc)

Compare owns expectations of the evolution of each risk factor with markets expectations

Basically there are two main disciplines for strategic exposures

Macroeconomics analysis – studying economic cycle

Fundamental Analysis – studying asset’s value and earnings cycle

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3 – Risk factors for markets forecasting

Valuation

Metrics: Price Momentum, volumes, RSITool: Technical analysis

Liquidity

Earnings cycle

Metrics: Growth, Inflation, cash PolicyTool: Macroeconomic analysis

Macroeconomic

Metrics: Multiples (PE, PB, DY), Fair Value (DDM, DCF), Fed Model (B/E Yield)Tool: Fundamental analysis

Metrics: Earnings growth, margins, revenuesTool: Fundamental analysis, quantitative analysis

Metrics: cash policy, yield curve, M1 / M2, foreingns reserves, companies cash flowsTool: Macro research, balance sheet analysis

Momentum

2. Strategic Asset Allocation

Macroeconomic Analysis

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3 – Macroeconomic Analysis

> Economic Cycle Analysis

> Economic Clycle and Market Trend

> Expectations Role

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Economic Cycle: Introduction

Definition: alternation of phases (expansion – contraction) characterized by a different pathos in the economic activity

Key Variables for markets:

1. Gross Domestic Product economic growth

2. Inflation prices increase

3. Economic Policy: cash and fiscal

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Economic Cycle: GDP

Definition: sum of the markets values of all final goods and services domestically produced in a country in a given year

Components: C + I + G + (X-M)

C = Consumption

I = Investments

G = Government Spending

(X-M) = Net exports

Periodical: quarterly looking at other, more frequent, indicators is necessary

USA EUPersonal consumption 71% 56%Gross private investment 14% 22%Government spending 18% 20%Net exports -3% 2%

TOT 100% 100%

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GDP: Consumption

Components: durable goods + non durable goods + services

Leading indicators:

> Labour market indicators:

1. Unemployment rate (monthly)

2. jobless claims (weekly)

3. nonfarm payrolls (monthly)

> Personal income (monthly)

> Durable good orders (monthly)

> Real estate market indicators:

1. Price (monthly)

2. Housing starts (monthly)

> Consumer Confidence USA (monthly)

> U. of Michigan’s index of Consumer Sentiment USA (monthly)

> Consumer Confidence EU (monthly)

Real indicators

Sentiment indicators

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GDP: Investments

Components: residential investments + capital expenditures + inventories

Leading indicators:

> Industrial production (monthly)

> Retail sales (monthly)

> New orders (monthly)

> Philadelphia Fed USA (monthly)

> Chicago Purchasing Manager USA (monthly)

> ISM: PMI manufacturing, services and composite (monthly)

> Sentix, Zew and IFO EU (monthly)

Real indicators

Sentiment indicators

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Inflation

π = (Pt- Pt -1) / Pt -1

1. π >0 and increasing Inflation

2. π >0 and decreasing Disinflation

3. π <0 Deflation

Indicators:

> GDP deflator (quarterly)

> Consumer Price Index (monthly)

> Producer Price Index (monthly)

For each indicator there are general data and core data (ex food & energy)

There are rate-numbers

Only the percentage variations are important

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USA consensus

Fonte Bloomberg - Pagina ECFC

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EU consensus

Fonte Bloomberg - Pagina ECFC

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Economic calendar

Fonte Bloomberg – Pagina WECO

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Economic cycle and market’s returns

High growth Potential output Zero growth or negative

Inflation

Commodities + + +Equity ++Credits + +Bond - - -Liquidity - - -

Commodities + + +Equity ++Credits + +Bond - -Liquidity - - -

Commodities + Bond =Liquidity =Equity - Credits -

Disinflation

Equity + + +

Credits + +

Commodities + +

Liquidity –

Bond - -

Equity + +

Credits + +

Commodities +

Bond =

Liquidity =

Bond + + +

Equity =

Credits =

Commodities =

Liquidity =

Deflation

Bond + + +

Liquidity + + +

Equity - - -

Credits - - -

Commodities - - -

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Economic cycle and trend of the market: role of macroeconomic analysisEurosystem Staff forecast for year 2006 Data ex post, 2006

Eurosystem Staff forecast for year 2007 Data ex post, 2007

Eurosystem Staff forecast for year 2008 Data ex post, 2008

1. Expectations change and they adapt themselves to new events and data (adaptive expectations)

2. The aim does not consist in becoming infallible forecasters

3. The speed of adaptation to new evidences is the matter

March-08 June-08 September-08 December-08PIL % 1,3 - 2,1 1,5 - 2,1 1,1 - 1,7 0,8 - 1,2CPI % 2,6 -3,2 3,2 - 3,6 3,4 - 3,6 3,2 - 3,4

December-05 March-06 June-06 September-06 December-06PIL % 1,4 - 2,4 1,7 - 2,5 1,8 - 2,4 2,2 - 2,8 2,5 - 2,9CPI % 1,6 - 2,6 1,9 - 2,5 2,1 - 2,5 2,3 - 2,5 2,1 - 2,3

2006PIL % 3,0CPI % 2,2

2008PIL % 0,4CPI % 3,85

2007PIL % 2,1CPI % 2,35

March-07 June-07 September-07 December-07PIL % 2,1 - 2,9 2,3 - 2,9 2,2 - 2,8 2,4 - 2,8CPI % 1,5 - 2,1 1,8 - 2,2 2,4 - 2,8 2,0 - 2,2

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Economic cycle and trend of the market: role of macroeconomic analysis1. Building an own main scenario

• It is important to have a central scenario and an alternative one based on the analyzed indicators2. Adapting the scenarios to the evidences

• The scenarios can change through time due to new data and new events 3. Rebuilding and monitoring what the market incorporates

• Every moment the market incorporates a specific scenario of growth-inflation• The market is one of the best forecaster (the best?), efficient and conservative• Are the markets the reflection of the economy, or the opposite? During last years often the oppositehas been often true (see currencies)

4. Analyzing and understanding if and why yours and market’s scenarios differ one from another

• In order to find investment’s opportunities it is necessary to identify the differences between your own scenario and the one incorporated by the market

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Expectations’ role: what the market incorporates

1. Growth: yield curve

spread corporate

sectors’ trends (cyclical – defensive)

2. Inflation: break even inflation

commodities

3. Cash policy: future on Fed Funds and on Eonia

2 years yields

2. Strategic Asset Allocation

Fundamental Analysis

29

> Introduction to fundamental analysis

> Valuation’s methods:

> DCF e DDM

> Multiples

> Conclusions

Fundamental Analysis

30

Introduction to fundamental analysis

Valuation process: analyze the relationship between Value and Price of financials assets

Issue: identify the “theoretical fair value” of an asset that should be different, at least temporarily, than the market price.

By selecting assets undervalued is possible to get extra returns compare to the market’s average.

When is used

1. Security Selection (equities, bonds, real assets)…

2. Asset Selection

3. Generally speaking in the active management

Is useful only if:

4. The investment’s time horizon is medium/long

5. The investment process is structured and disciplined

31

Intruduction to fundamental analysis

Fundamental analysis works better in inefficient markets, where markets price often differs from fair value

Should anyway be used also in efficient markets. Markets becomes efficient for the action of many investors looking for returns and undervaluation, therefore there are possibilities of temporaries inefficiencies also in efficient markets

Valuation is not objective. Every valuation model depends on inputs and estimations that we put into the valuation’s process

The valuation’s process is much more important than the result (fair value). A transparent and coherent process is helpful in order to better understanding the value’s drivers of financials assets

32

Valuation’s methodologies

Discounting cash flows

1. DDM (Dividend Discount Model). Is the simplest methodology. It allows to estimate the equity value as the Net Present Value (NPV) of the future Cash Flow to equity (dividends)

2. DCF (Discounted Cash Flow). Is the methodology most complete. It allows to estimate the value of the Firm (equity + debt) as the Net Present Value (NPV) of future cash flow to firm

Multiples

3. PE (Price to Earnings)

4. PB (Price to Book)

5. PS (Price to Sales)

6. PEG (Price to Earnings Growth)

7. Fed Model (relative valuation equity – bond)

33

Valuation’s methodologies - DDM e DCF

DDM: Equity value

DCF: Firm Value (Equity + Debt)

n

t te

te

k

CF1 )1(

Equity Value

Ke= Cost of Equity

n = life of the asset

CFe= Cash flow to Equity (dividends)

Firm (EV) Value

WACC= Weighed Average Cost of Capital

n = life of the asset

CFf = Cash flow to firm

n

t t

tf

WACC

CF1 )1(

34

Value drivers in a DCF model:

1. Cash flows to firm (CF), that depends on:

• Sales Growth

• Profitability – Margins (EBITDA & EBIT margins)

• Investments for future growth (CAPEX)

• Net Working Capital variations (NWC)

2. Discount rate: Weighted Average Cost of Capital (WACC)

3. Terminal value of the firm

Firm Value and DFC

35

There are 3 options for estimating sales growth:

> Compare growth estimations with historical data

> Make assumptions on market growth and market’s share expectations

> Compare growth estimates with analyst estimates

Estimating sales growth needs:

> Good knowledge of company history and sector perspective

> Keep in touch with analyst and company management

> High level of discipline making our assumptions

Value drivers in DCF Model: Sales Growth

36

There are 3 options for estimating margins

> Compare estimates with historical data

> Compare estimates with competitors

> Compare estimates with analysts assumptions

Capex spending shows how the company invest for future growth and consist of 2 elements:

Net Capex: shows how much the company invests in new equipment in addition to what is necessary to maintain the efficiency of the existing facilities.

Non Cash Working Capital: allows us to consider the level of inventories and the policy regarding accounts receipts and payments (rise in inventories means drain in cash flow).

Value drivers in DCF Model: Margins and Capex Spending

37

Value drivers in DCF Model: Discount rate

Discount Rate = weighted average cost of capital (WACC)

WACC =

Cost of equity = return required by investors to invest into the firm compare to risk free

Cost del debt = rate of interest paid by the firm on own debt

1. Depends on credit profile of the firm

2. Is calculated by using financials indicators of rating’s agencies

= Financial leverage

EquityDebt

DebtDC

EquityDebt

Equity E C ebtostquityost

EquityDebt

Equity

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DCF: estimation of cost of equity

Cost of equity is calculated using the CAPM (Capital Asset Pricing Model)

K = Rfr + (Beta * RP)

K = Cost of equity (expected return)

Rfr = Risk-free rate

Beta

RP = Risk Premium

Exemple: ENI

Risk Free = 3.5%

Beta = 1 (Bloomberg)

Risk Premium = 4.5% (should be different but on average stay between 4% and 5%)

Cost of equity for ENI = 3.5% + 1*4.5% = 8%

39

WACC =

exemple: ENI

Cost of Equity = 8%

Cost of Debt = 6%

Cost of Debt after tax = 6% x (1- 45%) = 3.3%

Debt = 16.3 bn € (al 31/12/2007)

Equity = 42.9 bn € (al 31/12/2007)

WACC = = 8% x 0.72 + 3.3 % x 0.28 = 6.68%

Note: Leverage and WACC

Se ENI would have debt of 3 x Ebitda ~ 90 bn €

WACC = = 8% x 0.32 + 3.3% x 0.68 = 4.8%

DCF: estimation of WACC

EquityDebt

DebtDC

EquityDebt

Equity E C ebitoostquityost

Tax Rate

9.423.16

16.33.3%

42.916.3

42.9 % 8

9.4290

16.33.3%

42.990

42.9 % 8

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DCF: ratios that affects cost of equity

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Debt risk

4242

Return

Bond asset return

Rfr = Free Risk asset return

α = risk premium

L = liquidity premium (same qualities securities)

LRR rf

4343

Risk

Definition: returns’ variability around expected medium return

Rational investor theory: given two securities that offer the same expected return, investors will prefer the less risky one

Risk types in fixed interest bonds’ market

1. Credit risk

2. Market risk

3. Liquidity risk

Instruments for risk evaluation

4. Rating (credit)

5. Duration (market)

4444

Credit risk : Rating

Definition: evaluation of a potential borrower's ability to repay debt

4545

Market risk: Duration

Definition: Measure of the sensitivity of the asset's price to interest rate movements

It is a measurement of how long, in years, it takes for the price of a bond to be repaid by its internal cash flows

Fixed interest and zero coupon bonds

Formula

N

tt

t

r

Ct

PD

1 )1(

1

P = Price

C = Cash flows (coupon and debt)

r = Interest rate

N = Time to maturity (yearly, quarterly,…)

4646

Liquidity risk

Definition: lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss

> Liquidity

< Costs (market debt)

< Tempi

Instruments to evaluate the liquidity of a fixed income asset

1. Exchanges’ scale on the secondary market

2. Emission size

3. Market makers’ number

4. Bid/Ask spread

5. Quotations’ transparency

47

We are at the last step of our DCF Model

There are 2 options to calculate terminal value:

Liquidation Value. Usually is calculated using multiples: what kind of multiple shall we consider on sales, Ebidta, etc. to sell our company? Better methodology for fast growing company or restructuring stories

Stable Growth. The alternative is to estimate the appropriate stable growth level for the future. Better methodology for mature companies for which there is good visibility on growth rate

Value drivers in DCF Model: Terminal Value

48

Relative valuation - Multiples 1/3

The value of financials asset should be estimated by putting in relation the price and a series of fundamentals indicators.

Multiples allows relative valuation, looking at how the markets is pricing similar assets (peer comparison).

Markets inefficiencies among similar assets are easier to get and exploit. Using multiples it is possible to compare different assets over time.

It is important to remember that multiples should change over time, given the same fundamentals, according to some factors:

1. Liquidity

2. Earnings cycle

3. Sentiment

There are different type of multiples:

4. earnings

5. book value

6. sales

7. normalized for growth (Price Earnings Growth)

8. relative (Fed Model)

49

Relative valuation - Multiples 2/3

Multiples of earnings

Price-earnings ratio or PE: ratio between price and EPS (earnings per share)

1. PE Forward (earnings estimated for the next 12 months)

2. PE Trailing (on realized earnings in the last 12 months)

Multiples of operating earnings

Enterprise Value / EBITDA o EBIT (*)

Cash Earnings multiples

Price/Cash Flow (earnings + amortization)

*Ebitda = Earnings Before Interest Taxes Depreciation & Amortization

*Ebit = Earnings Before Interest Taxes

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Relative valuations – Multiples 3/3

Multiples on Book Value (BV)

Price / Book value: ratio between price and the value of own capital

Enterprise Value (EV) / Capital: ratio between (Equity + Debt) and Capital

Multiples on sales

Enterprise Value (EV) / Sales: ratio between EV and sales

Multiples normalized for growth

PEG = PE / Expected Growth Rate. Allows to compare peers normalizing multiple for the growth factor

Realative multiples

Fed Model: Bond Yield (10Y) – equity Yield (Earnings / Price). Express relative valuation between equity and bond markets

51

Equity Market - Valuation

FED Model MSCI Europe

-15%

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DY Mean

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Fundamental analysis – some conclusions

Disciplined evaluation process improve risk – return profile of the investment

DCF models help to better understanding companies' operational dynamics and therefore to better interpret different phases of the markets

It is important to knows the evaluation’s drivers (sales, margins, cash flows) to catch market’s movements

Multiples allow to get a picture of the evaluation context immediately, and help to compare evaluation over time

It is important to remember that even with non change on fundamentals, multiples should change over time as a function of macro and market environment.

2. Strategic Asset Allocation

Portfolio’ s Construction

54

3 – Portfolio’s construction The aim of Strategic Asset Allocation is to build solid and efficient portfolios over the long

run.

• Forecast accurately is difficult and not enough to generate stable performances in the long period. Must have a framework in terms of rules and instruments for portfolio construction.

• It requires a solid asset allocation tool and systematic approach to risk allocation and management.

1. Knowing the risk exposure and the potential losses of the portfolio

2. Knowing each tool’s contribution to overall risk

3. Be able to intervene to modify the risk level

4. Allows invested capital protection (discretionary choices are not enough)

• In that sense risk management ex ante is a tool for managing portfolios, not only a tool for controlling risk exposure. At the end portfolio management is the “discipline” of managing risk ex ante.

> If the phase of forecasting should be also qualitative and intuitively managed, the phase of portfolio’s construction in by definition quantitative. Combining 10 assets classes, 2616 (!!!) different portfolios can be created (thus compared)

> There is empirical evidence that optimized portfolios generate better and more stable performances for units of risk (Sharpe Ratio)

55

Increasing activities’ number:

• efficient frontier improves, shifting upward

• single activities’ portfolio's variances contribution ( ) tends to 0, whereas covariance’s

contribution ( ) tends to the mean covariance

Diversification: Importance of activities’ number

The more negatively correlated and more assets compose the portfolio, the better the benefit of the diversification is

i iih2

R

σ

n securities

n -1 securities

n -2 securities

EFFICIENT

FRONTIER

i j jiijjihh 222

n. attività

σ

ijσ

56

Is impossible to forecast the best Asset Class on a systematic ways

History tells us that no exist asset class able to produce stable and positive return each year

Obbl. Gov. 3-5 Debito Emerg. Corporate HY Debito Emerg. Commodities Corporate HY Commodities Obbl. Gov. 3-5 Corporate HY Commodities Debito Emerg.

6,1% 13,1% 28,2% 11,7% 37,7% 11,7% 9,7% 8,8% 60,6% 26,2% 8,5%

Monetario Obbl. Gov. 3-5 Debito Emerg. Corporate HY Az. globale Debito Emerg. Debito Emerg. Monetario Debito Emerg. Az. globale Obbl. Gov. 3-5

4,6% 8,7% 25,7% 11,4% 24,2% 9,9% 6,3% 4,0% 28,2% 18,1% 3,3%

Corporate HY Monetario Az. globale Obbl. Gov. 3-5 Debito Emerg. Az. globale Monetario Debito Emerg. Az. globale Corporate HY Corporate HY

3,3% 3,4% 8,6% 5,6% 10,7% 5,7% 4,0% -10,9% 22,7% 15,2% 3,1%

Debito Emerg. Commodities Obbl. Gov. 3-5 Az. globale Corporate HY Monetario Obbl. Gov. 3-5 Corporate HY Commodities Debito Emerg. Monetario

1,4% -1,7% 3,8% 4,6% 3,1% 2,9% 3,4% -27,1% 11,4% 12,0% 0,9%

Az. globale Corporate HY Monetario Monetario Obbl. Gov. 3-5 Obbl. Gov. 3-5 Corporate HY Commodities Obbl. Gov. 3-5 Obbl. Gov. 3-5 Commodities

-13,2% -2,1% 2,4% 2,1% 2,9% 0,5% 1,6% -36,0% 5,5% 1,5% -4,2%

Commodities Az. globale Commodities Commodities Monetario Commodities Az. globale Az. globale Monetario Monetario Az. globale

-19,3% -33,7% -3,2% 0,9% 2,1% -9,6% -4,2% -38,7% 0,7% 0,4% -4,6%

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

The best approach is a dynamic and systematic management of diversification

3 – Portfolio’s Construction: why is so important to diversify

57

3 – Indicators for allocating and managing Risk

Main indicators to estimate ex-ante risk:

1. VAR (Value at Risk) = maximum possible loss for a time horizon, given a certain level of probability

2. Expected Volatility = standard deviation of portfolio’s returns; indicates the possible returns’ fluctuations around the mean

3. Beta (equity) and Duration (bond)

4. Risk attribution for asset classes and financials tools

Expected volatility provides a simple information of portfolio overall risk. Limits of Var methodology:

5. It forces a return’s distribution estimation, often mistaken

6. It does not explain the “rare event” outside the estimated probability

7. It is dangerous to declare to clients

58

3 – Volatility breaking down

It is important to break down the result in order to understand the different risk sources. The two main fundamental indicators are:

1. MCTR = Marginal Contribution To Risk; indicates how total portfolio volatility varies with an infinitesimal increase of the weight of a security

2. CAR = Contribution to Active Risk; indicates the contribution of the single security to the overall risk of the portfolio

Increasing securities’ weight, overall risk decreases

Increasing securities’ weight, overall risk increases

59

3 – Inputs for Risk Budget, Optimizations and Portfolio’s Construction

Analysis of Financial’s Activities (DNA)

MonetarioInflation linked

Renta fija AAA Euro

Periféricos Euro

Corporate IG ST Euro

Corporate IG Global

Corporate HY

Deuda Emergente

Renta Variable Global

Commodities

Volatilidad Anualizada

0,1% 4,7% 5,2% 1,5% 1,5% 3,8% 7,8% 6,0% 14,4% 16,2%

Rentabilidad Anualizada

0,9% 7,9% 7,6% 3,8% 3,6% 8,5% 9,2% 11,2% 12,1% -9,7%

Matriz de Correlación

MonetarioInflation linked

Renta f ija AAA Euro

Periféricos Euro

Corporate IG ST Euro

Corporate IG Global

Corporate HY

Deuda Emergente

Renta Variable Global

Commodities

Monetario 100,0% 5,2% 1,4% 20,4% 10,5% 11,4% 4,7% 9,9% 1,8% -9,5%Inflation linked 100,0% 68,8% 15,3% 23,1% 34,9% -13,3% -3,4% -29,6% -11,5%

Renta fija AAA Euro 100,0% 19,2% 45,5% 44,4% -0,3% 3,5% -21,1% -15,7%Periféricos Euro 100,0% 28,8% 19,1% 20,4% 15,1% 13,4% -4,8%

Corporate IG ST Euro 100,0% 82,3% 60,3% 59,0% 19,1% 18,7%Corporate IG Global 100,0% 68,0% 69,0% 16,2% 23,5%

Corporate HY 100,0% 63,1% 41,1% 35,5%Deuda Emergente 100,0% 38,2% 50,3%

Renta Variable Global 100,0% 36,0%Commodities 100,0%

60

3 - Risk Budgeting and Portfolio’s Construction

Asset Class PesoContributo al

rischio

Contributo al rischio

normalizzato

Monetario 23% 0% 1%Liquidez 8% 0% 0%Periféricos Euro 6/12m 15% 0% 1%

Renta Fija Core 5% 0% 0%Renta fija AAA Euro 0% 0%Renta fija gobierno real 5% 0% 0%

Renta Fija Spread 30% 1% 14%Corporate IG ST Euro 10% 0% 2%Corporate IG Global 20% 0% 12%

Actividad de riesgo 42% 3% 85%Corporate HY 8% 0% 11%Deuda Emergente 14% 1% 17%Renta Variable Global 17% 2% 51%Commodities 3% 0% 7%

TOT 100%

Vol max 10,0%Vol cartera 4,0%Risk Budget 40%

Constraints:

Data from history: 104 weekly returns Risk Profile: balanced Maximum Volatility: 10% Strategic Risk Budget: 40% Duration: maximum 5 years Max Equities + Commodities: 40%

61

3 - Optimization

A. Classic model: Mean-Variance

Minimize risk given a certain level of target return

Efficient Frontier

B. Model with views: Black- Litterman

Mean Variance + Views of Investment Committee

Efficient Frontier adjusted according to Asset Allocation’s Inputs

62

1 - Risk budget: example

Risk profile:

1. Low (L): max volatility = 4%

2. Medium (M): max volatility = 7%

3. High (H): max volatility =10%

Base Portfolio (without views): Risk budget = 25%

Target volatility L = 25%*4% = 1%

Target volatility M = 25%*7% = 1,75%

Target volatility H = 25%*10% = 2,5%

σ

Target portfolios

R

1% 1,75% 2,5%

L

MH

63

1 - Example: output

Portafogli della FE

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0,2

%

0,4

%

0,8

%

1,2

%

1,5

%

1,9

%

2,3

%

2,7

%

3,1

%

3,5

%

3,9

%

4,3

%

4,8

%

5,3

%

5,9

%

6,5

%

7,2

%

8,2

%

9,4

%

Risk

Monetario Obbligazionario GovtCorporate AzionarioCommodities

Efficient Frontier

2,00%

3,00%

4,00%

5,00%

6,00%

7,00%

8,00%

0,00% 2,00% 4,00% 6,00% 8,00% 10,00%

Risk

Re

t

Efficient Frontier

2,00%

3,00%

4,00%

5,00%

6,00%

7,00%

8,00%

0,00% 2,00% 4,00% 6,00% 8,00% 10,00%

Risk

Re

t

Target porfolio

Efficient Frontier Portfolio

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0,2%

0,2%

0,3%

0,5%

0,6%

0,8%

0,9%

1,1%

1,3%

1,4%

1,6%

1,8%

2,0%

2,2%

2,4%

2,6%

2,8%

3,0%

3,2%

3,5%

Risk

Cash Govt Bond Corporate Equity Commodities

3. Tactical Asset Allocation

65

3- Tactical Asset Allocation

To improve returns for units of risk over time is important to adapt strategic exposures according to short terms markets movements

Basically there are two main disciplines for tactical allocation

Tactical Risk Management – capital protection

Technical Analysis – studying price movements

3. Tactical Asset Allocation

Tactical Risk Management

67

Risk management (ex ante) for Tactical Asset Allocation To reduce volatility over time and try to protect capital part of the investment process must be

delegated to risk management tools not only to markets forecast

Independently of your forecast it is important having methodologies to adapt your portfolio according to markets movements (often market itself is the best predictor..)

The quality of portfolio management depends also on the stability of return (management of volatility)

> Risk managemnt ex ante:

1. Capital protection instruments (Total Return Products)

2. Tracking Error ex ante (Benchmark’s products)

Responsibility: portfolio’s management department

68

Risk management ex ante: CPPI

CPPI (Constant Proportion Portfolio Insurance) is a quantitative management methodology strongly oriented to risk control

It is based on dynamic portfolio rebalancing according to market’s movements. Basically correspond to portfolio's insurance: portfolio has a floor that must be protected.

This strategy well performances in trend phases (up or downtrend)

CPPI better performance if:

1. Main objective is volatility minimization (capital protection)

2. The issue is Sharpe Ratio maximization (return for each unit of risk)

Strategies opposite to CPPI:

3. Constant Mix: buys equities when they loss and sells when they grow. This strategy well performance along “lateral” markets and bad along bear or bull markets

4. Buy-and-hold: buy at the beginning and do not operate

69

1. “Risky Asset”

2. “Risk-Free Asset”

Components of dynamic portfolios:

The two components’ weights are periodically optimized to benefit from eventual market increases, giving capital protection.

CPPI: functioning

• Classical CPPI criteria:

“Risky Asset” = m (Nav – Floor) where:

m = constant multiplierNAV = net assetFloor = protected level

CPPI is worth only for m > 1 otherwise 2 special cases:

(a) m=1, floor= cash value -> “buy-and-hold” strategy.

(b) 0<m<1, floor= 0, -> “constant-mix” strategy .

70

CPPI - Example

Nav = 100 (net asset)

Floor= 75 (wealth protection level)

Multiplier = 2

Equity investment = 2 * (100 - 75) = €50

1. Initial asset allocation = 50 € equity, 50 € cash.

2. Net asset value remains >= 75 unless equity value is more than 25 €, thus –50%.

3. Ratio 1/m = max loss endurable to protect the floor. 1/m in this case is –50%.

When risky activity loss value, total asset decreases

4. Equity value from €50 to €45, Nav decreases to € 95 (=45+50).

Appropriate equity allocation:

5. 2 * (95-75) = €40

6. sell €5 equity; buy €5 cash 40 € equity, 55 € cash.

On the contrary, if equity gains -> buy.

71

Portfolio rebalancing

UP

DOWN

Risk-Free Asset

Risky Asset

45

60

Risk-Free Asset

Risky Asset

50 50

Risk-Free Asset

Risky Asset

5540

72

4 – Equity portfolio: tracking error management

Optimization

Titolo Settore Peso

ENI SpA Energy 19.52%

Tenaris SA Energy 2.57%

Saipem SpA EnergyBuzzi Unicem SpA Materials 0.61%

Italcementi SpA MaterialsFinmeccanica SpA Capital Goods 1.64%

Prysmian SpA Capital Goods 0.51%

Impregilo SpA Capital GoodsAtlantia SpA Transportation 1.59%

Fiat SpA Automobiles & Components 1.94%

Pirelli & C SpA Automobiles & Components 0.34%

Luxottica Group SpA Consumer Durables & Apparel 1.05%

Bulgari SpA Consumer Durables & Apparel 0.42%

Geox SpA Consumer Durables & ApparelLottomatica SpA Consumer Services 0.81%

Autogrill SpA Consumer ServicesMediaset SpA Media 1.56%

Arnoldo Mondadori Editore SpA Media 0.19%

Seat Pagine Gialle SpA Media 0.16%

Gruppo Editoriale L'Espresso SpA MediaParmalat SpA Food Beverage & Tobacco 1.04%

UniCredit SpA Banks 11.00%

Intesa Sanpaolo SpA Banks 11.32%

Unione di Banche Italiane SCPA Banks 4.33%

Banco Popolare SC Banks 2.85%

Banca Monte dei Paschi di Siena SpA BanksBanca Popolare di Milano Scarl BanksMediobanca SpA Diversified Financials 1.77%

Assicurazioni Generali SpA Insurance 11.18%

Alleanza Assicurazioni SpA Insurance 1.31%

Fondiaria-Sai SpA Insurance 0.70%

Unipol Gruppo Finanziario SpA InsuranceMediolanum SpA InsuranceSTMicroelectronics NV Semiconductors & Semiconductor 1.75%

Telecom Italia SpA Telecommunication Services 4.92%

Fastweb Telecommunication ServicesEnel SpA Utilities 11.09%

Terna Rete Elettrica Nazionale SpA Utilities 1.84%

Snam Rete Gas SpA Utilities 2.03%A2A SpA Utilities

Quantitative Screening Fundamentals analysis

Final Portfolio

+ +

=

Pair trades, only on particulat stocks

+

+

Markets exposure (80% - 100%)

Risk and performance

control

73

4 - Optimization and minimization of tracking error

1. Way to replicate a portfolio with a wide number of securities in one with less securities in order to:

• Reduce the transactional costs of re-balancing

• Provide a background for the following active bets

2. Way to immunize the portfolio from: market, currency, sectors, style and size exposure

3. Way to concentrate on stock-picking

Titolo Settore PesoENI SpA Energy 18.82%Tenaris SA Energy 1.88%Saipem SpA Energy 1.39%Buzzi Unicem SpA Materials 0.34%Italcementi SpA Materials 0.27%Finmeccanica SpA Capital Goods 1.50%Prysmian SpA Capital Goods 0.37%Impregilo SpA Capital Goods 0.29%Atlantia SpA Transportation 1.59%Fiat SpA Automobiles & Components 1.94%Pirelli & C SpA Automobiles & Components 0.34%Luxottica Group SpA Consumer Durables & Apparel 0.98%Bulgari SpA Consumer Durables & Apparel 0.35%Geox SpA Consumer Durables & Apparel 0.14%Lottomatica SpA Consumer Services 0.55%Autogrill SpA Consumer Services 0.27%Mediaset SpA Media 1.52%Arnoldo Mondadori Editore SpA Media 0.15%Seat Pagine Gialle SpA Media 0.12%Gruppo Editoriale L'Espresso SpA Media 0.08%Parmalat SpA Food Beverage & Tobacco 1.04%UniCredit SpA Banks 10.37%Intesa Sanpaolo SpA Banks 10.69%Unione di Banche Italiane SCPA Banks 3.70%Banco Popolare SC Banks 2.22%Banca Monte dei Paschi di Siena SpA Banks 1.71%Banca Popolare di Milano Scarl Banks 0.81%Mediobanca SpA Diversified Financials 1.77%Assicurazioni Generali SpA Insurance 10.93%Alleanza Assicurazioni SpA Insurance 1.06%Fondiaria-Sai SpA Insurance 0.45%Unipol Gruppo Finanziario SpA Insurance 0.41%Mediolanum SpA Insurance 0.33%STMicroelectronics NV Semiconductors & Semiconductor 1.75%Telecom Italia SpA Telecommunication Services 4.80%Fastweb Telecommunication Services 0.12%Enel SpA Utilities 10.78%Terna Rete Elettrica Nazionale SpA Utilities 1.53%Snam Rete Gas SpA Utilities 1.72%A2A SpA Utilities 0.93%

Titolo Settore Peso

ENI SpA Energy 19.52%

Tenaris SA Energy 2.57%

Saipem SpA EnergyBuzzi Unicem SpA Materials 0.61%

Italcementi SpA MaterialsFinmeccanica SpA Capital Goods 1.64%

Prysmian SpA Capital Goods 0.51%

Impregilo SpA Capital GoodsAtlantia SpA Transportation 1.59%

Fiat SpA Automobiles & Components 1.94%

Pirelli & C SpA Automobiles & Components 0.34%

Luxottica Group SpA Consumer Durables & Apparel 1.05%

Bulgari SpA Consumer Durables & Apparel 0.42%

Geox SpA Consumer Durables & ApparelLottomatica SpA Consumer Services 0.81%

Autogrill SpA Consumer ServicesMediaset SpA Media 1.56%

Arnoldo Mondadori Editore SpA Media 0.19%

Seat Pagine Gialle SpA Media 0.16%

Gruppo Editoriale L'Espresso SpA MediaParmalat SpA Food Beverage & Tobacco 1.04%

UniCredit SpA Banks 11.00%

Intesa Sanpaolo SpA Banks 11.32%

Unione di Banche Italiane SCPA Banks 4.33%

Banco Popolare SC Banks 2.85%

Banca Monte dei Paschi di Siena SpA BanksBanca Popolare di Milano Scarl BanksMediobanca SpA Diversified Financials 1.77%

Assicurazioni Generali SpA Insurance 11.18%

Alleanza Assicurazioni SpA Insurance 1.31%

Fondiaria-Sai SpA Insurance 0.70%

Unipol Gruppo Finanziario SpA InsuranceMediolanum SpA InsuranceSTMicroelectronics NV Semiconductors & Semiconductor 1.75%

Telecom Italia SpA Telecommunication Services 4.92%

Fastweb Telecommunication ServicesEnel SpA Utilities 11.09%

Terna Rete Elettrica Nazionale SpA Utilities 1.84%

Snam Rete Gas SpA Utilities 2.03%A2A SpA Utilities

Benchmark

Minimum tracking error portfolio:

• Market coverage 70%• Sectors’ and market neutral• “Style and size bias” monitoring

74

4 - Quantitative screening

1. Way to limit the broad investible universe within logical criteria

2. First step of the active portfolio management

DJ STOXX 600(600 stocks)

Quantitative Screening

100 securities

Financial Analysts

50 securities

For a good quantitative screening it is necessary:

1. Breaking down the investible universe in comparable subgroups (sectors)

2. Implementing the screening models in subgroups, according to specific indicators applied to each group

75

4 - Risk management

1. Tracking error

2. Tracking error decomposition

76

3. Tactical Asset Allocation

Technical Analysis

77

> Introduction

> Trend Analysis

> Chart types

> Moving Averages

> Oscillators

> Market size

Context

78

Technical Analysis

Why useful: once fundamental analysis says an asset is under or overvalued, technical analysis helps in determine the market entry and exit timing

Strength point: flexibility and adaptability:

1. Applicable to any market and activity

2. It identifies what fundamental analysis fails to, as asset price patterns

3. Mix of analysis methodologies easily affordable

4. No difficult data retrieval

5. Useful in formulating short, medium and long term forecasts

Technical analysis contribute to limit mistakes identifying stop profits and losses

79

2 – Market has three trends ( long, medium, short )

Primary trend is the most important and lasts more than a year. Can be bullish or bearish

Secondary trend traces corrective phases of the primary trend, moving in countertrend compared to it. Can last from three weeks to months

Minor trend, short lasting, easily “manipulable”, thus can be ignored

Examinee graphic bias enables to identify three trend typologies:

1. Uptrend, when quotations move drawing a set of increasing troughs and peaks

2. Downtrends, when quotations move drawing a set of decreasing troughs and peaks

3. Sideways, when quotations move draw a set of troughs and peaks which confirm previous levels

80

3 – Trend line

Trend lines are straight lines which define the identified trend

The bullish trendline is obtained by linking a set of increasing troughs, the bearish trendline is obtained by linking a set of decreasing peaks

The larger the number of troughs or peaks reached are and the longer the time horizon is, the more significant are the trendlines

The break of a trendline, along with an increase in volumes and with the impossibility of shortly recovering of the lost level, indicates that the actual upward movement is near the reverse tendency

The correction movement subsequent to the break of a trendline causes a re-trace of the previous movement generally included between 33 and 66%, in the most cases the re-trace places aroud 50%

81

AMERICAN EXPRESS - da 05/03 a 12/07 - Long uptrend trendline

82

4 – Volumes must support the trend

Volumes must move in the same direction as the trend one, thus during the trends:

1. uptrend, volumes increase during bullish phases and decrease during bearish phases

2. downtrend, volumes increase during bearish phases and decrease during bullish phases

Volume is an important confirmation of the trend

The maximum peak of volumes occurs short before the trend inversion in action, independently to its direction. This is one of the most important alarm signal provided by the volumes.

Chart types

Chart types most used are:

1 – Line chart2 – Bar chart3 – Candlestick chart 4 – Point & Figure chart

For the graphic representation arithmetic or log scale can be used

84

1 – Line chart

Line chart does not provide much information, the one point represents the closing price of the evaluated asset

This chart type is generally used to represent:

1. economic data

2. indicators

3. very long graph

85

2 – Bar chartBar chart provides more pieces of information:

1. open, left dash

2. close, right dash

3. minimum, inferiore tip of the vertical line

4. peak, upper tip of the vertical line

5. maximum daily range, difference between peak and minimum

86

3 – Candlestick chart Candlestick chart provides visual information for both single and composed figures:

1. Bullish market, white body

2. Bearish market, black body

3. opening, white rectangle lower side and black rectangle upper side

4. closing, white rectangle upper side and black rectangle lower side

5. minimum, figure’s lower extremity

6. peak, figure’s upper extremity

7. maximum daily range, difference between peak and minimum

8. shadow, lines outside the rectangle representing price levels not sustainable in that specific period. The longer the lines, the more significant they are

87

Nasdaq composite – from 05/08 to 10/08 – Candlestick chart

88

Moving Averages

Moving averages provide market’s direction. Their sensibility derives from the data numbers which has created with

Three types of moving averages are used: simple, weighted and exponential

Simple moving average is the ratio between the sum of the data of a specific period and the total of the values

Weighted and exponential moving average are made up to overweight data momentum

For more correct analysis combination of moving averages are frequently used. Averages follow the trend, thus during uptrends they are bullish oriented and vice versa

89

S&P 500 - form 04/00 to 10/08 – Simple Moving Average at 100 and 200 days

90

Oscillators

Oscillators are secondary indicators subordinated to trend analysis.

During well defined trend phases (bullish or bearish) oscillators are useful in order to:

1. Point out short term “excesses” (overbought or oversold)

2. Signal “strength” losses of the in action trend (momentum)

3. Anticipate the end of the trend (negative or positive divergences)

Oscillators are tools extremely useful during “lateral” markets as peaks and minimums of the graph exactly coincide with oscillator’s peaks and minimums, given that they both move sideways

91

1 – Oscillators

Momentum + ROC (Rate of Change)

“Momentum” and ROC are oscillators that estimate the speed and acceleration with which prices move

Momentum = Closing price x – Closing price of x-n

ROC = 100 * [(closing price x – closing price x-n) / closing price x-n]

Values obtained oscillate around zero line. A value over/under these levels indicates increasing/decreasing prices during the esteemed period.

RSI (Relative Strength Index)

Oscillator estimates market’s strength, resolving the problem of erratic movements and satisfying the constant need of a superior and inferior track

RSI = 100 – {100 / [1+ (average of the uptrend closings of n days / average of the downtrend closing of n days)]}

Values obtained oscillate between zero and 100, furthermore, conventionally, a upper line and a lower line at a level of 70 and 30 respectevely (80 and 20 for more sensible oscillators)

92

Market size

Advance / Decline line

The indicator is made up with the total of the cumulated differences between the securirties componing an uptrend index and those downtrend, given a specific period

Markets made up of marked trend must be confirmed by a huge numbers of securities coherent (with their fluctuations) with that movement

% of equities over/under a moving average

The indicator highlights the number of securities over or under the specified moving average. The most used moving averages are those at 50, 100 and 200 days

This indicator usually moves alongside the index trend

Divergence points between indicator, index and excess hypothetical situations must be taken into account

Securities which mark new peaks/minimums

The indicator is made up calculating the equities’ number that registered new peaks and new minimums at 53 weeks

The basic principle is that an upside marked must come with a fair number of new net peaks

4. Global Fund Selection

94

2 – Portfolio management: financials tools selection

Portfolio Return = asset classes returns + alfa generation – costs (management fees).

To create stable returns is very important to allocate costs efficiently

Identify Optimal trade off between costs and Alfa generation

Concentrate costs where there is evidence of Alfa generation (active funds). Typically equities and credits markets

Minimize costs where there is not evidence of Alfa generation (passive funds or Etfs). Typically money markets and governments bonds markets

Importance of open architecture: possibility to buy the best products for each asset class or markets

Responsibility: fund’s analysis department

95 GLOBAL FOCUS LIST

Fund Selection Team Risk Management

A team focused on the analysis and selection of third party funds globally with the objective of:

1. Homogenize the fund selection procedure

2. Elaborate a Global Focus List

3. Continuous monitoring of the funds within the list

In a process with the following characteristics:

4. Independence

5. Open Architecture

6. Proprietary Model

7. Integrated into the bank: Risk Management division involved in the fund admission process

Global Funds Selection Process

96

To enhance the selection model interaction among product specialist of different units

Adapting the Focus List to the local needs of every Division (registration, distribution, niches, etc).

Homogenize the fund selection

Elaborate a Global Focus List

Monitoring

Determination of niches and funds recommended at a global level.

Compatible with all the platforms: Custody, Advisory and Discretionary Management.

A monthly Committee will revise the focus list and analyze new niches from a double perspective; distribution and management

Dynamic review and monitoring of the recommended Focus List.

Global Team Analysis

97

Team dedicated to the selection of funds globally, with the aim of:

Indipendence

Own & Third Partis Funds Analysis

Quantitative & Qualitative Analysis

Risk – Funds Ammission

Selection process consistent in all units

Global Focus List

Systematic

Monitoring

Global Team Analysis

98

Fund Universe of 20.000 Funds / 400 Fund Houses

Track-record, liquidity, AUM

Risk – Return Binomial

Team Management Quality

Minimum Requirements

Quantitative Model

Qualitative Model

Due-diligenceRisk Management Team

The Best Funds80 Funds / 40 Fund Houses

Fund Selection Process

99

Start Point: no restrictions in choosing the best funds

Wide range via the platform AllFundsBank

Open Architecture: 20.000 Funds out of 400 Fund Houses available Broader investment funds universe

No restrictions in choosing from the largest number of fund houses and funds

Searching for the best funds and the most prestigious and specialized fund houses

400 Fund Houses20.000 Funds

Universe of Analysis

100

First qualitative and quantitative screening:

Asset Under Management: minimum 100 Million Euro or equivalent

Liquidity: Daily NAV

Track Record: minimum 1 years of fund’s history

Documentation: availability of information needed to analyze and process the credit rating of the fund and housing management

Minimum Requirements

101

+Qualitative Rating

Weight of 40%

Quantitative Rating

Weight of 60% Minimum fund analysis requirements:

€100 MM of AUM or equivalent

Daily NAV

One year from inception (3 years preferably)

Enough documentation to elaborate a proper rating of the fund and the asset management company

Funds Selection: the importance of Proprietary Model

102

Absolute Ratios

1 and 3 Rolling years

Relative Ratios

1 and 3 Rolling years

Info Ratio:

Jensen’s Alpha :

R2:  

ET

MRFRIR ii

.

tmtp RRRR

YX

XY

SS

SR

22

22

Quantitative Rating

Weight of 60%

Profitability:

Standard Deviation :

Sharpe Ratio :

Maximum Drawdown

Sortino Ratio

Kurtosis

Skewness

tR

ft

tt RFRSR

3)( 4

n

xx

Kurtosis

3)()2()1(

xx

nn

nS i

deviationDownside

Rfanualizadantabilidad Re

Proprietary Model

103

Quantitative analysis is necessary… but before arriving to a conclusion funds should be analyzed from a different point of view too

Proprietary Model

104

Qualitative Rating

Weight of 40%

AM Company Valuation

Based on:

Transparency

Service

Information quality, etc

Fund Manager Valuation

Made by the asset class analyst after meeting the manager team

Questionnaires with key information regarding:

Investment Process

Organization

Risk Management, etc...

Due Diligence

Minimum qualitative fund analysis requirements:

Access to portfolio details

Monthly information of AUM´s evolution

Monthly Attribution

At least, quarterly meeting or CC with the fund managers

Communication of relevant information regarding investment process, team changes, NVA suspension, etc.

Proprietary Model

105

Once the analysis and selection of funds has been completed, according to the model explained in the previous pages, Control and Risk department will centralize the admission process and the monitoring of the funds

The admission process implies:

1. Send a request to Risk Management in order to evaluate the inclusion of a fund. The following documentation must be attached:

Asset management company

Asset management company’s Due Diligence

Audited financial accounts (last 2 years)

Fund

Fund’s due diligence

Latest factsheet

Full prospectus and/or offering memorandum

Audited financial accounts

Once a year the admitted funds list, volumes and general situation will be reviewed

Risk Management

106

E

Q

U

I

T

Y

TEMATICS

ABSOLUTE

RETURN

I

N

C

O

M

E

F

I

X

E

D

GLOBAL FOCUS LIST

Bi-Weekly CommitteeLOCAL

FOCUS LISTS

The result: Global Focus List

107

The committee’s objective is to establish which funds compounds the Global Focus List as well as those of the Local Focus List in each business unit

The Fund Committee is the place where the Fund Selection Team will:

Present the current Focus List.

Include in the Focus List a potential new entry requested by different divisions if there is a real demand due to diversification or investment needs

Will follow the funds evolution included in the Focus List.

Fund Committee

108

Critical Alerts (C)

Follow Up Alerts (FU)

Relevant management team changes

NAV suspension

Reputational Risk (sanctions o irregulars practices)

Control Alert

Underperformance vs. peers

AUM drop > 20% month

Max. Drawdown

2 Standard Dev. break

Investment process change

M&A 

UNDER REVISION (UR)

MAX 3 MONTHS

DECISION

HOLD

SELL

DUE DILIGENCE

MAX 48 HOURS

Funds Selection Process: Monitoring single instrument

109

ALERTS QUICK UPDATES & FOLLOWING

E-MAIL

Critical (C)

Follow up (FU)

Focus Fund Committee assistants

MONTHLY QUARTERLY DOCUMENTATION

Asset class

Focus Fund

Markets

Asset class + fund FL

Mail

Intranet

+

+

Key Information elaborated by Fund Selection Team:

The issue of alerts, quick updates and following updates will be sent to all the committee members by e-mail.

The team will elaborate a monthly and quarterly document of each asset class and each time there is a meeting with a Focus List PM.

The process: the importance of communication

110

The goal is not to select the best fund of the month but select funds that are firmly in the top quartile.

The Focus List of Funds have outperformed the market average in all categories

Results

5. Control and Reporting

112

3 – Control and reporting> Risk management ex-post: verify that risk constraints (volatility, Var) are respected

1. Volatility ex-post

2. VaR ex-post

3. Risk Attribution ex post

> Performance analysis: absolute and for units of risk

• Benchmark

Security Selection: (Rp-Rb)*Wb

Asset Allocation: (Wp-Wb)*Rb

Interaction Effect: (Rp-Rb)*(Wp-Wb)

• Total return

Asset Allocation: Rb*Wp

Security selection: (Rp-Rb)*Wp

Rp is the Return of the asset (security) in the portfolio, Rb is the Return of the asset in the benchmark, Wp is the weight of the asset in the portfolio and Wb the weight of the asset in the benchmark.

113

3 – Risk management ex post: indicators for control

Daily verify mandate constrains respect

1. Ex-post volatility: square root of the sum of the daily square returns’ standard deviations (Rt) and the returns mean sample ( )

n = observations’ number

2. VaR ex-post: α-esim percentile of a normal distribution with mean and variance equal to mean ( ) and variance sample ( ) of daily observed returns

Zα = α-esim percentile of a normal standardized

3. Tracking Error Volatility (TEV): historical volatility of the mean sample gap between asset return (i) and benchmark return (b):

)(ˆ bii RRTEV

1

)(ˆ 1

2

n

RRn

t t

R

R 2 ˆZRVaR

114

3 – Ex-post risk control

4. Information Ratio (IR): active return divided by tracking error, where active return is the difference between the return of the security and the return of a selected benchmark index, and tracking error is the standard deviation of the active return

5. Sharpe Ratio (SR):measure of the excess return per unit of risk in an investment asset or a trading strategy (used for total return approach)

• Maximum Draw Down (MDD): max cumulated loss from the former peak during a specific time horizon [t0, T]

i

rfii

RRSR

i

bii TEV

RRIR

)()(max 21],[ 021

0tRtRMDD

TtttTt

115

> Monitoring absolute portfolio performance

> Determining performance’s contribution of each asset class

> Breaking down of asset allocation and stock picking contributions with Brinson model:

Benchmark

Asset Allocation: (hp- hb)*Rb

Stock picking: (Rp- Rb)*hb

Interaction Effect: (Rp- Rb)*(hp- hb)

Total Return

Asset Allocation: Rb*hp

Stock picking: (Rp-Rb)*hp

hp = weight asset in the portfolio, hb = weight asset in the benchmark

Rp = return of the asset in the portfolio, Rb = return of benchmark

4 – Performance analysis

Breaking down DELTA RETURN against benchmark

Breaking down portfolio RETURN

116

4 – Performance: benchmark VS Total Return

Benchmark

Strategic Asset Allocation Benchmark

Tactical Asset Allocation Management

Monitoring delta contribution against benchmark and breaking down in:

>Tactical Asset Allocation

>Security selection

>Interaction Effect (security selection effect induced by asset allocations decisions)

Total Return

Strategic and tactical Asset Allocation Management

Monitoring portfolio absolute return and breaking down in :

> Asset Allocation

> Security selection

117

4 – Example: Benchmark

Growth StrategyUpdate date 08-30-2013 TOT PTF TOT PTF TOT PTFStart Date 04-16-08 -1,50% 1,49% 8,14%

TOT BCMK TOT BCMK TOT BCMKAA = Asset Allocation -1,11% 1,41% 5,33%

SP = Selection DELTA AA SP IN DELTA AA SP IN DELTA AA SP IN

IN = Interaction effect -0,39% -0,30% -0,18% 0,09% 0,08% -0,33% 0,17% 0,23% 2,80% 0,80% 2,07% -0,07%

Asset ClassPresent Weight

Bcmk Weight

Delta PerfDelta

ContributionAA SP IN Perf

Delta Contribution

AA SP IN PerfDelta

ContributionAA SP IN

Cash 11,9% 5,0% 6,9% 0,01% 0,00% 0,00% 0,00% 0,00% 0,02% 0,00% 0,00% 0,00% 0,00% 0,05% 0,03% 0,00% 0,01% 0,02%Bond 10,8% 20,0% -9,2% 0,02% -0,06% 0,00% -0,11% 0,05% 0,35% -0,07% -0,03% -0,07% 0,03% 0,86% -0,31% -0,07% -0,43% 0,20%

SANTANDER EURO CREDIT 4,4% 0,04% 0,00% 0,00% 0,00% 0,00% 0,33% -0,01% -0,01% 0,00% 0,00% 1,11% -0,02% -0,03% 0,02% -0,01%

PIMCO GLOBAL IG 6,4% -0,95% -0,06% 0,00% -0,12% 0,05% -0,25% -0,06% -0,02% -0,07% 0,03% -2,91% -0,29% -0,04% -0,45% 0,21%

Equity 77,3% 75,0% 2,3% -1,31% -0,34% -0,30% -0,07% 0,03% 1,30% -0,13% -0,30% 0,25% -0,08% 5,78% 2,94% 0,88% 2,51% -0,44%Global 14,2% 14,2% -0,11% -0,16% 0,03% 0,02% 0,26% 0,03% 0,14% 0,10% -0,06% 0,73% -0,49% -0,29%

MFS MERIDIAN GLOBAL EQUITY "I1" (EUR) 7,3% -2,81% -0,08% -0,08% 0,00% 0,00% 1,45% -0,01% -0,13% 0,07% 0,05% 12,58% -0,01% -0,13% 0,07% 0,05%

JPM GLOBAL FOCUS "B" 6,9% -2,12% -0,03% -0,08% 0,03% 0,02% 3,69% 0,23% 0,01% 0,13% 0,09% 10,37% 0,11% 0,35% -0,16% -0,09%

Europe 27,5% 35,0% -7,5% -0,75% 0,23% 0,04% 0,25% -0,05% 4,32% -0,09% -0,40% 0,41% -0,09% 6,31% 1,25% -0,70% 2,57% -0,62%

MFS MER-EUROPEAN VALUE-I1€ 5,5% -0,90% 0,00% 0,01% -0,01% 0,00% 3,07% -0,15% -0,08% -0,09% 0,02% 11,60% 0,10% -0,15% 0,32% -0,08%

INVESCO PAN EUROPEAN EQUITY 11,4% 1,30% 0,25% 0,02% 0,30% -0,07% 8,52% 0,27% -0,16% 0,56% -0,13% 18,27% 0,87% -0,28% 1,51% -0,37%

THREADNEEDLE PAN EUR-€ 10,8% -1,02% -0,01% 0,02% -0,04% 0,01% 3,88% -0,21% -0,16% -0,06% 0,01% 12,10% 0,28% -0,28% 0,74% -0,18%

USA 19,2% 20,0% -0,8% -2,84% 0,02% -0,22% 0,00% 0,24% 0,47% 0,27% 0,04% 0,13% 0,09% 14,14% 1,82% 0,92% 0,53% 0,37%

JPM US Select Equity D Acc USD 12,1% -2,81% -0,14% -0,14% 0,00% 0,00% 1,90% 0,20% 0,03% 0,10% 0,07% 18,65% 1,04% 0,59% 0,26% 0,19%

ROBECO US PREMIUM EQ-I$ 7,2% -2,93% -0,09% -0,08% -0,01% 0,00% 1,21% 0,07% 0,02% 0,03% 0,02% 21,61% 0,78% 0,34% 0,27% 0,18%

J apan 6,8% 8,0% -1,2% -2,27% -0,04% 0,02% -0,07% 0,01% -2,92% 0,01% 0,02% -0,02% 0,00% 12,41% -0,27% -0,22% -0,06% 0,00%

SCHRODER INTERN SELECT FUND-JAPANESE6,8% -3,06% -0,04% 0,02% -0,07% 0,01% -3,04% 0,01% 0,02% -0,02% 0,00% 12,03% -0,27% -0,22% -0,06% 0,00%

Asia Ex J apan 4,1% 5,0% -0,9% -0,51% -0,04% 0,00% -0,05% 0,01% 1,19% -0,11% -0,01% -0,11% 0,02% -4,56% 0,08% 0,03% 0,06% -0,01%

M&G Investment Fund-ASIAN 4,1% -1,50% -0,04% 0,00% -0,05% 0,01% -1,02% -0,11% -0,01% -0,11% 0,02% -3,39% 0,08% 0,03% 0,06% -0,01%

Emerging 5,4% 7,0% -1,6% -1,60% -0,15% 0,02% -0,22% 0,05% -2,31% -0,21% 0,02% -0,30% 0,07% -12,18% 0,07% 0,11% -0,10% 0,06%

ABERDEEN GL-EMMKT EQTY-I2 5,4% -4,72% -0,15% 0,02% -0,22% 0,05% -6,48% -0,21% 0,02% -0,30% 0,07% -13,44% 0,07% 0,11% -0,10% 0,06%

TOT 100,0% 100,0% 0,0%

Month to date Quarter to date Year to date

118

4 – Example: Total ReturnRainbow 7Update date 08-30-2013 AA = Asset Allocation TOT AA SP TOT AA SP TOT AA SP

Start Date 12-15-08 SP = Selection -0,64% -0,62% -0,02% 0,87% 0,51% 0,35% -0,12% -0,45% 0,33%

Asset Class Present Weight Perf Contribution AA SP Perf Contribution AA SP Perf Contribution AA SP

Monetario 27,38% 0,01% 0,01% 0,00% 0,01% 0,02% 0,06% 0,00% 0,05% 0,05% 0,14% 0,02% 0,13%Obbligazionario Gov 10,09% 0,02% 0,02% 0,00% 0,02% 0,41% 0,11% 0,04% 0,07% 0,96% -0,01% -0,06% 0,06%

CCT-eu 15/12/2015 10,09% 0,22% 0,02% 0,00% 0,02% 1,08% 0,11% 0,04% 0,07% 2,86% 0,17% 0,08% 0,09%

Obbligazionario IG 31,80% -0,26% -0,09% -0,08% -0,01% 0,47% 0,22% 0,15% 0,07% 0,51% -0,14% 0,03% -0,17%SANTANDER EURO CREDIT 9,12% 0,04% 0,00% 0,01% 0,00% 0,33% 0,03% 0,05% -0,02% 1,11% 0,10% 0,12% -0,02%HENDERSON H. EURO CORPORATE BOND "I2" 8,70% -0,25% -0,02% -0,03% 0,01% 0,94% 0,08% 0,04% 0,04% 0,77% -0,14% -0,15% 0,01%PIMCO GLOBAL IG 5,93% -0,95% -0,06% -0,02% -0,03% -0,25% -0,01% 0,03% -0,04% -2,91% -0,20% 0,04% -0,23%M&G European Corporate Bond 8,05% -0,18% -0,01% -0,03% 0,02% 1,61% 0,13% 0,04% 0,09% 2,00% 0,10% 0,02% 0,08%

Attività di rischio 30,73% -1,65% -0,58% -0,55% -0,04% 1,52% 0,48% 0,32% 0,16% 3,57% -0,12% -0,43% 0,31%Obbligazionario Emergenti 5,20% -2,68% -0,18% -0,14% -0,04% -1,76% -0,09% -0,08% -0,01% -9,84% -0,66% -0,76% 0,10%

MFS Emerging Markets Debt Fund 5,20% -3,32% -0,18% -0,14% -0,04% -1,93% -0,09% -0,08% -0,01% -9,15% -0,66% -0,76% 0,10%Obbligazionario Corporate HY 5,92% -0,59% -0,06% -0,04% -0,02% 1,63% 0,08% 0,10% -0,01% 2,18% 0,16% 0,11% 0,05%

GS GLOBAL HIGH YIELD PORTFOLIO "I" (EURHDG) 5,92% -0,93% -0,06% -0,04% -0,02% 1,43% 0,08% 0,10% -0,01% 3,05% 0,16% 0,11% 0,05%Azionario 18,60% -1,95% -0,37% -0,40% 0,03% 2,27% 0,43% 0,26% 0,17% 8,20% 0,48% 0,27% 0,21%

Globale 9,66% -2,04% -0,25% -0,21% -0,05% 1,53% 0,15% 0,08% 0,07% 9,69% 0,23% 0,17% 0,06%JPM GLOBAL FOCUS "B" 4,00% -2,12% -0,09% -0,08% 0,00% 3,69% 0,14% 0,06% 0,08% 10,37% 0,10% 0,10% -0,01%MFS MERIDIAN GLOBAL EQUITY "I1" (EUR) 5,66% -2,81% -0,17% -0,13% -0,04% 1,45% 0,01% 0,02% -0,01% 12,58% -0,10% -0,13% 0,04%Europa zona € 4,92% -1,10% -0,05% -0,08% 0,03% 5,11% 0,20% 0,16% 0,04% 5,75% 0,33% 0,12% 0,22%BGF-EURO MKTS FUN-D2 4,92% -0,37% -0,05% -0,08% 0,03% 6,23% 0,20% 0,16% 0,04% 12,74% 0,33% 0,12% 0,22%Stati Uniti Hedged 3,02% -3,16% -0,06% -0,10% 0,04% 1,51% 0,10% 0,04% 0,05% 14,15% 0,33% 0,31% 0,01%THREADNEEDLE AMER SEL "2" INA (EURHDG) 3,02% -2,04% -0,06% -0,10% 0,04% 3,28% 0,10% 0,04% 0,05% 15,24% 0,33% 0,31% 0,01%Emergenti 1,00% -1,60% 0,00% -0,01% 0,01% -2,31% -0,01% -0,02% 0,01% -12,18% -0,45% -0,43% -0,02%ROBECO EMERGING MARKETS EQ "I" (EUR) 1,00% -0,49% 0,00% -0,01% 0,01% -0,96% -0,01% -0,02% 0,01% -11,81% -0,45% -0,43% -0,02%

Commodities 1,01% 2,97% 0,02% 0,03% -0,01% 3,83% 0,04% 0,04% 0,00% -4,35% -0,10% -0,05% -0,05%VONTOBEL BELVISTA COMMODITY "HI" (EURHDG) 1,01% 2,47% 0,02% 0,03% -0,01% 4,40% 0,04% 0,04% 0,00% -7,75% -0,10% -0,05% -0,05%

TOT 100,00%

Duration 2,28

Month to date Quarter to date Year to date

119

Module 5. Case Study

120

Phases of an investment’s process

1. Identify investor’s characteristics and goals

• Risk profile

• Approach (Total Return vs Benchmark)

• Time horizon

2. Portfolio management

• Forecast risk and return for each asset class

• Construct efficient portfolios (optimization)

• Choosing the most efficient financials instruments (stocks, Etf, mutual funds, etc)

• Risk management ex ante (CPPI, risk attribution)

3. Control and reporting

• Risk analysis ex post

• Performance attribution

121121

1 – Total Return Approach: Risk profile

7%

0 – 35%

65% - 100%

Moderate

3 years

10%

0 – 50%

50% - 100%

Equilibrate

5 years

Medium HighLow

Maximum volatility

Equity:

Bond:

Mifid profile:

Investment term:

4%

0 – 20%

80% - 100%

Conservative

2 years

122122

2 - Macroeconomic Forecasts2013 Forecast 2014 Forecast

WorldGDP 3,1% 3,9%Inflation 2,6% 3,0%

USAGDP 1,8% 2,9%Inflation 1,5% 1,6%Fed Funds 0,2% 0,2%10 yrs Interest Rate 2,8% 3,8%

EuropeGDP -0,4% 1,0%Inflation 1,5% 1,6%BCE Funds 0,5% 0,5%10 yrs Interest Rate 2,0% 2,9%

JapanGDP 1,7% 1,5%Inflation 0,0% 1,8%O/N Call Rate 0,02% 0,02%10 yrs Interest Rate 1,0% 1,7%

EmergingGDP 5,2% 5,6%Inflation 4,5% 4,6%

123123

Central scenario

Recovery as U Recovery as W80% 20%

Developed economies benefit from the cycle of stocks and emerging demand. Comsumption, even slighly, increases both to avoid negative GDP data

Recovery from the supply side is not supported by demand in developed economies. Increased risk of relapse in the US than in Europe

Probability of strong increase of raw materials, thanks to the economic recovery

Correction of the rise of raw materials, without the slightest touch of 2009

The lending improves slowly both on supply and demand side

Specific episodes of financial stress. Lending below the historical average

Small inflationary pressures as for the weakness of demand in the OECD

Very low inflation

Interest rates stable in the medium term. The central banks start to thinkn about exit strategy

Expansionary monetary policy and backwardness of the exit strategy. Rates steady until 2014

124124

Our scenario (80%)

We’re positive on fundamental side. Last economic data support our scenario of a global sustainable growth:

• USA: last data confirm the strengthening of the economy

• Eurozone: signals of recovery, although remains some differences between core economies and peripheral countries

• Emerging: lack of momentum, even if macro context is still positive. Chinese data shows a moderate growth, but more healthy and sustainable

Central Banks are still supporting economic growth through accommodative monetary policies

– Fed: markets are expecting the beginning of tapering for the end of the year

– ECB: interest rates will remain low for a long time. Draghi adopts a new way of communication (pre-commitment)

– Emerging markets: monetary policies still supportive, even if some central banks adotped restrictive measures to defend currencies

– Japan: first positive results for Abeconomics

125

1. European equities still undervalued

2. At these levels the market discounts a progressive and gradual exit from the recession

3. Valuations are not an issue nor a driver for the markets. The ratings could become an important element for the continuation of the rebound only if the fundamentals continue to improve

2 - Equity Valutations

126

2 – Parameters’ estimation for portfolio construction

CashInflation linked

Govt Bond AAA

Govt Periph.

Euro

Corporate IG Short

term Euro

Corporate IG Global

Corporate High Yield

Emerging Debt

Global Equity

Emerging Equity

Commodities

Annualized Volatility 0,1% 5,6% 5,1% 1,5% 1,4% 4,2% 6,6% 7,3% 12,9% 18,2% 14,0%

Annualized Returns 0,7% 1,5% 3,3% 3,7% 3,4% 4,8% 9,9% 3,8% 18,3% 0,9% -11,6%

Corretlation Matrix

CashInflation linked

Govt Bond AAA

Govt Periph. Euro

Corporate IG Short

term Euro

Corporate IG Global

Corporate High Yield

Emerging Debt

Global Equity

Emerging Equity

Commodities

Cash 100,0% 15,7% 7,5% 29,9% 17,3% 20,0% 10,5% 17,4% 5,9% 7,6% -7,1%

Inflation linked 100,0% 71,3% 18,4% 31,8% 58,1% 4,9% 28,2% -13,3% -3,0% -8,2%

Govt Bond AAA 100,0% 24,2% 46,4% 53,6% 6,0% 19,3% -3,4% 4,7% -17,0%

Govt Periph. Euro 100,0% 37,3% 24,5% 27,4% 20,3% 14,2% 11,9% -4,7%

Corporate IG Short term Euro 100,0% 74,4% 59,8% 60,4% 36,0% 45,6% 28,6%

Corporate IG Global 100,0% 60,4% 77,5% 25,8% 40,5% 25,7%

Corporate High Yield 100,0% 60,5% 45,2% 44,5% 39,3%

Emerging Debt 100,0% 46,9% 58,5% 48,5%

Global Equity 100,0% 76,2% 40,4%

Emerging Equity 100,0% 47,7%

Commodities 100,0%

Historical data of the last 2 years (weekly basis)

127

Optimal Portfolio: Example High Risk

INPUT:

1. Statistics: 104 data on a weekly basis

2. Profile: High Risk

3. Max volatility: 10%

4. Risk Budget: 40%

5. Duration: max 5 years

Asset Class WeightRisk

Contribution

Normalized Risk

Contribution

Cash 33% 0,1% 3%Cash 8% 0,0% 0%Govt Periph. 6/12 m 25% 0,1% 3%

Governement Bond "core" 0% 0,0% 0%Govt Bond AAA 0% 0,0% 0%Inflation Linked 0% 0,0% 0%

Corporate IG 25% 0,4% 9%Corporate IG ST Euro 15% 0,1% 3%Corporate IG Global 10% 0,2% 6%

Risky Assets 42% 3,6% 88%Corporate HY 10% 0,5% 11%Emerging Debt 8% 0,5% 12%Developed Equity 19% 2,2% 53%Emerging Equity 1% 0,2% 4%Commodities 4% 0,3% 8%

TOT 100% 4%

Vol max 10%Risk Budget 40%Duration 2,8YTM 2,5%

128

Tactical Asset Allocation

Equity: 130% - Overweight, neutral bias

We had a BUY signal at the beginning of the month. With the change of the strategic

weight, it also changes the signal of the relative weight

Notes:

Theorical exposure of assets can range from 0% until 200% of the strategic weight

Weight of 100%: theorical exposure = strategic weight

Strategic Weight Last Committee

New Strategic Weight

Signal as regards to new strategic weight

Equity 17,0% 20,0% 130%

129

Tactical Asset Allocation: CPPI

Theor. Weight

Ptf Weight

Delta

Equity 26,70% 20,12% -6,58%Commodities 1,46% 1,38% -0,08%

High Risk

130

Strategic Portfolio: security selectionAsset Class Weights

Cash 16,2%Government Bond 10,0%

CCT-eu 15/12/2015 10,0%

Corporate IG 30,4%SANTANDER EURO CREDIT 10,0%HENDERSON H. EURO CORPORATE BOND "I2" 3,5%PIMCO GLOBAL IG 8,4%M&G European Corporate Bond 8,5%

Risky assets 43,4%Emerging Debt 7,5%

MFS Emerging Markets Debt Fund 7,5%Corporate HY 8,0%

GS GLOBAL HIGH YIELD PORTFOLIO "I" (EURHDG) 8,0%Equity 26,5%

Global 13,9%JPM GLOBAL FOCUS "B" 6,8%MFS MERIDIAN GLOBAL EQUITY "I1" (EUR) 7,1%Eurozone 7,0%BGF-EURO MKTS FUN-D2 7,0%USA Hedged 4,3%THREADNEEDLE AMER SEL "2" INA (EURHDG) 4,3%Emerging 1,3%ROBECO EMERGING MARKETS EQ "I" (EUR) 1,3%

Commodities 1,5%VONTOBEL BELVISTA COMMODITY "HI" (EURHDG) 1,5%

TOT 100,0%

131

Performance attributionRainbow 10Update Date 09-13-2013 AA = Asset Allocation TOT AA SP TOT AA SP TOT AA SP

Start Date 12-31-08 SP = Selection 1,02% 1,16% -0,14% 2,06% 1,80% 0,26% 0,73% 0,56% 0,17%

Asset Class Weights Perf Contribution AA SP Perf Contribution AA SP Perf Contribution AA SP

Cash 18,09% 0,00% 0,00% 0,00% 0,00% 0,02% 0,04% 0,00% 0,04% 0,06% 0,11% 0,01% 0,10%Liquidità 6,62% 0,00% 0,00% 0,00% 0,00% 0,00% 0,00%BTP 3,00% 010414 6,85% 0,02% 0,00% 0,00% 0,00% 0,32% 0,02% 0,00% 0,02% 1,45% 0,04% 0,00% 0,04%SPAGNA 4,75% 300714 4,63% 0,02% 0,00% 0,00% 0,00% 0,54% 0,03% 0,00% 0,02% 2,27% 0,02% 0,00% 0,02%

Government Bond 11,91% 0,01% -0,01% 0,00% -0,01% 0,41% 0,10% 0,04% 0,06% 0,97% -0,12% -0,14% 0,02%BGF Euro Short Duration Bond Fund 4,98% 0,06% 0,01% 0,00% 0,00% 0,65% 0,01% 0,00% 0,00% 0,98% 0,01% 0,00% 0,00%CCT-eu 15/12/2015 6,93% -0,22% -0,01% 0,00% -0,01% 0,85% 0,09% 0,04% 0,05% 2,63% 0,11% 0,05% 0,05%

Corporate IG 25,91% -0,10% -0,08% -0,04% -0,05% 0,37% 0,10% 0,11% -0,01% 0,52% -0,19% 0,08% -0,27%SANTANDER EURO CREDIT 9,92% -0,01% 0,00% 0,01% -0,01% 0,33% 0,03% 0,06% -0,02% 1,11% 0,11% 0,14% -0,03%HENDERSON H. EURO CORPORATE BOND "I2" 3,50% -0,11% 0,00% -0,01% 0,00% 0,83% 0,03% 0,01% 0,02% 0,66% -0,04% -0,05% 0,01%PIMCO GLOBAL IG 5,50% -0,26% -0,02% -0,02% 0,00% -0,51% -0,04% 0,02% -0,06% -3,16% -0,32% -0,01% -0,30%M&G European Corporate Bond 7,00% -0,66% -0,06% -0,02% -0,04% 0,94% 0,08% 0,02% 0,06% 1,33% 0,06% 0,00% 0,05%

Risky assets 44,08% 2,79% 1,11% 1,19% -0,09% 4,38% 1,80% 1,63% 0,16% 6,69% 0,96% 0,62% 0,33%Emerging Debt 7,41% 0,92% 0,04% 0,07% -0,03% -0,85% -0,09% -0,05% -0,04% -9,00% -0,90% -0,98% 0,08%

MFS Emerging Markets Debt Fund 7,41% 0,49% 0,04% 0,07% -0,03% -1,45% -0,09% -0,05% -0,04% -8,70% -0,82% -0,87% 0,06%Corporate HY 7,94% 0,71% 0,03% 0,06% -0,02% 2,35% 0,14% 0,18% -0,04% 2,90% 0,25% 0,22% 0,04%

GS GLOBAL HIGH YIELD PORTFOLIO "I" (EURHDG) 7,94% 0,40% 0,03% 0,06% -0,02% 1,84% 0,14% 0,18% -0,04% 3,46% 0,25% 0,22% 0,04%Equity 27,31% 4,11% 1,05% 1,09% -0,04% 6,50% 1,69% 1,46% 0,23% 12,70% 1,75% 1,48% 0,27%

Global 14,24% 3,67% 0,53% 0,51% 0,02% 5,26% 0,76% 0,62% 0,14% 13,71% 0,88% 0,76% 0,12%JPM GLOBAL FOCUS "B" 7,03% 4,28% 0,29% 0,25% 0,04% 8,13% 0,54% 0,35% 0,18% 15,09% 0,37% 0,32% 0,05%MFS MERIDIAN GLOBAL EQUITY "I1" (EUR) 7,21% 3,35% 0,24% 0,26% -0,02% 4,85% 0,23% 0,27% -0,04% 16,36% 0,17% 0,14% 0,03%Eurozone 7,24% 5,16% 0,26% 0,36% -0,10% 10,53% 0,54% 0,59% -0,04% 11,21% 0,73% 0,52% 0,21%BGF-EURO MKTS FUN-D2 7,24% 3,75% 0,26% 0,36% -0,10% 10,21% 0,54% 0,59% -0,04% 16,98% 0,73% 0,52% 0,21%USA Hedged 4,46% 3,35% 0,18% 0,14% 0,03% 4,91% 0,31% 0,21% 0,11% 17,97% 0,64% 0,59% 0,05%THREADNEEDLE AMER SEL "2" INA (EURHDG) 4,46% 4,09% 0,18% 0,14% 0,03% 7,51% 0,31% 0,21% 0,11% 19,95% 0,64% 0,59% 0,05%Emerging 1,37% 5,69% 0,08% 0,07% 0,01% 3,25% 0,07% 0,05% 0,02% -7,19% -0,56% -0,54% -0,03%ROBECO EMERGING MARKETS EQ "I" (EUR) 1,37% 6,29% 0,08% 0,07% 0,01% 5,27% 0,07% 0,05% 0,02% -6,26% -0,56% -0,54% -0,03%

Commodities 1,42% -1,38% -0,01% -0,02% 0,01% 2,41% 0,05% 0,03% 0,01% -5,67% -0,15% -0,10% -0,06%VONTOBEL BELVISTA COMMODITY "HI" (EURHDG) 1,42% -0,80% -0,01% -0,02% 0,01% 3,56% 0,05% 0,03% 0,01% -8,49% -0,15% -0,10% -0,06%

TOT 100,00%

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