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Beacon Wave Capital Management

Team C Member

Diagne, PapamagatteChen, Yujie

Hu, JingGan, YuzhouBrown, LucasWu, Yanchao

Contents

Macro factors

Recommendations

Portfolio investment groups

Analysis on portfolio

Portfolio performance

Macroeconomic Factors

Macroeconomics relatively stable in US, but uncertain in globalFED has dual mandate when determining monetary policy:● GDP growth & U.S. Unemployment● Inflation (Seeking price stability)● FED ending Quantitative Easing

Recommended Characteristics

Interest Rate Declining so far but will drift upwards in 2015 negatively impact treasury bonds

Macro-economic Conditions Oil prices will remain low in short term U.S Government support credit risk and limit increase in credit spreads, lower default risk Moderate Growth in the U.S. economy European recession and uncertainty in emerging markets

Recommended Characteristics

Features of Bond Short-term Short duration Corporate High Yield High Credit Spread European Bonds high risk

Reasons Less affected by rising rates Default risk hold outSince we recommend short duration bonds with high credit spreads, we position the interest rate on the left end of the yield curve.

International Bond Market Conditions

Emerging Country 10yr Bond Yields:B - Brazil: 12.3%R - Russia: 14.0% (Inverted Yield Curve)I - India: 7.8%C - China: 3.6%Germany Bund: 0.5%Japan JGB: 0.28%

Consider:Buy Brazil Corporate Bonds - Short duration (Hedge all currency exposure)Also consider short duration frontier market corporate bonds

Portfolio Investment Groups

5-Year US Treasury - IEI

Investment Grade Corporate ETF - LQD

Corporate Investment Grade

HSBC, P&G

High Yield Corporate ETF - HYG

Emerging Market Corporate ETF - CEMB

Developed Market Corporate ETF- PICB

MBS ETF - VMBS

Cash

Portfolio Investment Groups

Bond features ranked by risk Initial allocation compared to:

AGG Benchmark PSDTX – Putnam Short Duration Income Fund OGLVX – JP Morgan Short Duration Bond A

ETF advantages over Mutual Funds Lower operating expenses Higher liquidity – Active Management More precise allocation

Optimized allocation with Excel Solver Portfolio yield close to AGG yield

Weight Breakdown

TREASURY: 10% < 31% (AGG) – Seeking far less exposure to interest rate risk than the benchmark

CORPORATE: 40% > 19.4% (AGG) - Seeking double the exposure than the benchmark because less tied to interest rates and more on company fundamentals

INTERNATIONAL: 10% > 7.1% (AGG) - Seeking more emerging market exposure due to high growth rates matched with high yield/coupons and currently trades at a discount

MBS: 25% = 25% (AGG) - Seeking similar exposure to the MBS market due to high yield, more safety because collateralized, no price premium, and continuing recovery of the housing market

CASH: 15% < 17% (AGG) - We want to put slightly less cash on the sidelines and more in assets with a yield

Portfolio - ETFs

US Treasury - IEI (iShares 3-7 Year Treasury Bond)Duration - 4.56yrs Credit - AA Yield - 1.20%Performance:

Portfolio - ETFs

Performance

Portfolio - ETFs

Investment grade corporates - LQD (iShares iBoxx $ Invst Grade Crp Bond)Duration - 7.75yrs Credit - BBB Yield - 3.29%Performance:

Portfolio - ETFs

Performance

Portfolio - ETFs

High Yield Corporate - HYG（ iShares iBoxx $ High Yield Corporate Bd）

Duration - 4.23yrs Credit - B Yield - 5.66%Performance：

Portfolio - ETFs

Performance

Portfolio - ETFs

Emerging MKT Coporates –CEMB (iShares Emerging Mrkts Corporate Bond)Duration - 5.51yrs Credit - BB Yield - 4.24%Performance:

Portfolio - ETFs

Developed MKT Coporates - PICB （ PowerShares International Corp Bd ETF）

Duration- 6.91yrs Credit- A Yield- 2.69%Performance:

Portfolio - ETFs

Performance

Portfolio - ETFs

MBS - VMBS （ Vanguard Mortgage-Backed Securities ETF）

Duration- 4.72yrs Credit- AAA Yield- 1.58%

Performance

Portfolio - ETFs

Performance

Individual Securities

INVESTMENT GRADE CORPORATE BONDS

COMPANY: HSBC Bank (U.K.) DESCRIPTION: Worlds 2nd Largest BankSECTOR: FinancialsCOUPON: 5.1% (Fixed Coupon)YTM: 2.53%MATURE DATE: 04/05/2021DURATION: 5.3 YRSPRICE: $114.6 (14% Premium)CALLABLE: No

HSBC Credit Rating

CREDIT RATING: A+ (Morningstar), AA- (Fitch)

Individual Securities

INVESTMENT GRADE CORPORATE BONDS

COMPANY: Procter & Gamble (U.S.)DESCRIPTION: Large multinational consumer goods manufacturerSECTOR: Consumer DiscretionaryCOUPON: 5.1% (Fixed Coupon)YTM: 5.1%MATURE DATE: 10/24/2017DURATION: 2.4 YRSPRICE: $100.00 (No Premium)CALLABLE: No

P&G Credit Rating

CREDIT RATING: AA (Morningstar), AA- (Fitch)

Portfolio PerformanceAGG

Benchmark

Treasury IEI 1.20% 10% 30.9% $ 101.20 4.56 4.82 0.12%Corporate 40% 19.4%

Invest-grade LQD 3.29% 14% $ 111.88 7.75 12.18 0.46%

Indiv1 HSBC 5.10% 2% $ 114.70 5.3 6 0.10%

Indiv2 P&G 5.10% 4% $ 100.00 2.4 2.9 0.20%

High-yield HYG 5.66% 20% $ 103.07 4.23 4.66 1.13%

International 10% 7.1%Emerging CEMB 4.24% 5% 0.9% $ 99.23 5.51 7.63 0.21%Developed PICB 2.69% 5% 6.2% $ 100.22 6.91 8.94 0.14%MBS VMBS 1.58% 25% 25.9% $ 100.00 4.72 6.8 0.40%Cash 0% 15% 17.1%

Total 100%

Portfolio Average $ 102.66 5.17 6.74 2.76%AGG Average 107.83$ 5.29 15.74 2.27%

MaturityWeighted

yieldCategory Name Yield Percentage Price Duration

Thank you

Q&A