risk 2012 review & 2013 outlook

risk2012 Review

2013 outlookJanuary 2013

2012 calendar Key risk-related events that shaped the year. page 2

corporate Hedging disclosuresA breakdown of derivative posi-tions held by major companies in 2012. page 3

volatility watcHHow company hedging strategies were affected by market volatility dur-ing 2012. page 5

sovereign cds performance World heat-map showing how government credit swaps improved in a rollercoaster year. page 7

u.s. money fundsThe top ten U.S.

money funds’ hold-ings of euro-area and Japanese banks recovered in 2012. page 8

cross asset correlationsAn interactive guide showing how gold and oil correlated with equities during the year. page 9

corporate outlookExecutives look at the prospects for risk in 2013. page 10

portfolio factor rankingsHow investing style, industry and country factors affected returns in 2012. page 12

Contents 2012 Calendar

MontH aCtions

Jan

u.k. pension fund gilt purchases hit record.

u.S. Money funds cut French bank holdings by 97 percent since 2010.

european debt agencies in Sweden and Norway reap gains from interest rate swaps.

iNG begins hedging to reduce interest rate and currency effect on Basel iii credit valuation adjustment charges.

FeB

Restaurant chain McDonalds said it may benefit as suppliers ramp up op-tions hedging of grain used for rearing chickens.

Ford Motor Co increases bond investments to counteract a $3.4 billion increase in pension liabilities.

Deutsche Bank forced to take 1 billion euro capital charge on future litigation risk.

Axa, iNG increase estimated liabilities of u.S. variable annuity portfolios after policyholders held on to contracts.

Mar

Coca-Cola Co. opts to leave foreign cash in high-yielding emerging market deposits and hedge FX risk.

italy paid Morgan Stanley $3.4 bnillion to unwind a losing derivative bet.

Aviva, Delta lloyd add out-of-the money put options and swaptions to hedge tail risk.

BMw adds 25.7 billion euros of currency hedges, as it ramps up Chinese hedges.

aPr

increasing interest rates and low guarantees leave Chinese insurers facing billions of renminbi in policyholder redemptions.

Bt decides to use a June 2011 discount rate over planned December rate for pension fund, reducing its deficit by billions of pounds.

Google inc.’s foreign-exchange hedging costs rose above $100 million for the second quarter in a row for the first time.

kPMG casts doubt on vestia, the Dutch housing associations’ derivatives accounting.

MaY

Metlife, Prudential add equity options as falling volatility reduces hedging costs.

Swiss Re, Scor among major european reinsurers that increased holdings of financial debt, just before risk levels rose sharply amid euro-area breakup concerns.

Allianz updates its internal risk model with less conservative assumptions, boosting capital while Southern european bond prices fell.

JUn

taiwan life insurer hedigng costs rose even as new regulations create reserves against foreign currency fluctuations.

British defined benefit pensions deficits increase, after being the worst-funded in europe.

three large u.k. banks put $17.2 billion of their pension fund assets into cash.

JUlChina’s four largest banks turn to international firms for short-term borrowing.

Delta lloyd and iNG reassess interest-rate hedging strategies after Dutch central bank changes discount rate calculation.

aUGJPMorgan, uBS, Credit Suisse increase CDS hedges on italian sovereign.

Swiss life sold $8.1 billion of bonds amid concern that euro-Swiss franc hedges wouldn’t work in the event of a euro break-up.

seP

italian bank Monte Dei Paschi made a bet on long-dated government bonds, before short-dated eCB bond buying caused a rally in the short-term debt.

Deutsche Bank’s plan to boost capital by using lower internal risk weightings questioned by analysts.

oCtJPMorgan’s credit exposure to Southern europe almost doubles to $11.7 billion.

verizon pays to achieve $7.5 billion pension transfer.

nov

eADS increased currency hedges by $11.3 billion, betting that the euro would strengthen.

Allianz and Generali reduced holding of italian government bonds by a combined 4.9 billion euros.

deC

Canadian Banks RBC and CiBC reduced vaR even as trading revenues increased.

Metlife says low-rate hedges will add 45 percent to income for 2012, as ti adds protection against higher rates.

Bloomberg Brief risk

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01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 2

CorPorate HedGinG disClosUres Mouse over the rows for asset classes and industry for corporate disclosures

The amount of hedging done by companies is an important indicator of outlook by institutions in specific markets. Throughout the year, the Risk Brief compiles hedging data from filings. In the table below, selected disclosures in different markets are provided for 2012, for companies whose quarterly filings permit comparisons. Numbers are for notional amount of hedges reported at the beginning or during the quarter indicated, subject to filing date.

neivanda aequo inumquo dit voluptis modinq1 q2 q3 q4 HedGinG

instrUMentsenerGY

oil

oil producers (thousand barrels) 93,581 169,758 155,499 182,090Cruise Companies (thousand barrels) 22,704 29,377 36,590 40,513

Airlines (thousand barrels) 113,957 132,626 184,418 150,102

Natural GasNatural gas producers (trillions of btu) 3,530 3,252 2,906 2,398

CUrrenCies

eUr UsdAeronautic european Companies hedging $ revenues ($, millions) 91,385 97,535 102,075 104,835

u.S. companies hedging euro revenues ($, millions) 3,876.79 4,828.39 4,981.49 6,013.16

GBP-Usdu.S. companies hedging sterling revenues ($, millions) 2,251.01 2,767.33 2,722.27 3,128.25

inr-Usdindian technology Companies hedging $ revenues ($, millions) 3,821.09 5,454.01 5,278.93 4,997.85

Brl-UsdBrazilian companies hedging dollar-denominated costs ($, millions)

787.65 1,122.03 459.10 461.95

MXn-Usdu.S. companies hedging peso-denominated costs ($, millions) 79.81 64.44 80.70 64.50

Cad-Usdu.S. companies hedging canadian-dollar revenues ($, million) 296.60 322.70 249.90 360.40

JPY-Usdu.S. companies hedging yen-denomimated revenues ($, millions) 27.50 14.10 34.10 61.20

volatilitY

variance swapsu.S. insurers hedging variable annuities ($, millions) 18,402.00 19,108.68 19,834.28 20,058.68

Metals

silverCompanies using silver in their products (troy ounces) 203,058 144,250 99,870 56,170

nickelCompanies using Nickel in their products (pounds) 1,395,177 1,581,530 1,454,782

PlatinumCompanies using platinum in their products (troy ounces) 82,117 72,774 74,410 67,799

CopperCompanies using copper in their products (million pounds) 47.82 39.62 49.64 42.75

Source: Company notes

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q1 q2 q3 q4 HedGinG instrUMents

Companies using aluminum in their products (metric tons) 25,833.23 22,879.91 19,869.75 14,294.96

ZincCompanies using zinc in their products (metric tons)aGriCUltUral

CoffeeCompanies that use coffee in their products (million pounds) 30.54 111.42 107.88 72.35

soybean mealCompanies using Soybean Meal in their products (tons) 24,600 81,300 53,800

soybean oilCompanies using Soybean oil in their products ($, million) 8.00 19.00 14.00 30.37

CornCompanies using corn in their products (million bushels) 26.7 18.2 24 36.9

sugarCompanies hedging their sugar sales (million tons) 1.39 1.70 3.25 3.88

Meat

lean hogCompanies that use lean hogs in their products (million pounds) 704 573 685 347

interest ratesinsurer interest Rate Derivative Hedges ($ billions) 315.74 311.946 328.979 341.586

Regional uS Bank Freestanding mortgage hedges ($, billions) 32.035 7.774 7.767 7.428

Reit interest Rate Hedging Against Rising Rates ($, billions) 80.75 103.94 109.985 115.7

u.S. Government Agency (Receive Fixed) ($, billions) 492.94 520.478 574.768 616.165

Government Agency (Pay Fixed) ($, billions) 466.785 429.2 400.2 372.984

eqUitiesinsurer equity derivative notionals ($, billions) 60.015 82.55 84.26 97.354

eUro areau.S. bank exposure to Portugal, italy, ireland, Spain, Greece (net) ($, billions)

44.113 38.966 30.774 40.834

Source: Company notes

Click on the rows for asset classes and industry for individual corporate disclosures

corporate hedging disclosures ....

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volatilitY WatCH Click on dotted lines for interactive captions

Airlines reported the largest amount of hedges at the end of June, as implied volatility reached a record high over 2012.

rebound in natural Gas Prompts decrease in HedgesAfter natural gas prices halved in 2011, option traders expected further declines in prices as negative skew reached a high for for 2012 on Jan. 9. Producers of the commodity also began 2012 with substantial hedge positions in place, with range resources reporting a 78 percent increase in hedges against price declines in the last quarter of 2011, while dynegy inc. said on May 10 that it expected ‘negative settlements’ after selling natural gas put options in 2011.By the second half of the year, as prices rebounded sharply, gas producers cut back on hedging. Of five producers whose filings were analyzed by Bloomberg, notional hedges decreased by 32 percent between Janu-ary and September. The reversal was also reflected by option traders, with skew turning positive in November.

Weakening of Yen leads to Hedge increaseCentral bank intervention amid political pressure for a weaker yen prompted U.S. companies that export to Japan to increase their hedges during 2012. Since the yen strengthened to a record of 75 per dollar in 2011, a postwar high, the Bank of Japan and government have enacted 44 trillion yen in asset purchases and inter-vention. Bloomberg surveyed three U.S. companies that export to Japan - cadence design systems, en-ersys and teledyne. Between them, these companies increased their notional amount of dollar-yen hedges by 122 percent during 2012, according to quarterly filings. Option traders also became more bearish on the yen, with skew increasing to minus 1.3 percentage points in December.

oil Hedgers Fight Fast-Changing MarketWhipsawing prices proved a challenge for buyers and sellers of WTI crude oil in 2012, as companies sought to manage tail risk while avoiding getting caught with money-losing hedges. That was reflected in the price of short-term WTI options, where implied volatility briefly doubled during the middle of the year. At the start of 2012, moves by oil producers such as Hess inc. to increase hedges against falling prices seemed to backfire as WTI prices rose. By the end of the year, oil was showing a net decline, and four oil-producing companies surveyed by Bloomberg had increased their notional oil hedges by 100 percent, according to filings. U.S. airlines also increased hedges at the start of the year, only to decrease them again once the decline in prices became apparent.

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volatilitY WatCH ...continued from previous page

european defence Companies add dollar Hedges The three largest defence contractors in the euro area, european aeronautic, defence & space co., safran sa and mtu aero engines Holding ag increased their use of currency hedges to $104.8 billion from $91.4 billion at the end of the year, taking advantage of low exchange rates and volatility, Bloomberg analysis of company filings shows. EADS bought $27 billion of derivatives to hedge dollar revenues in the first nine months of the year, more than the $15.7 billion of hedges that matured, according to its third quarter filing. The company has taken advantage of prevail-ing market rates to reduce the average euro/dollar exchange rate to $1.29 in the third quarter. The euro declined 5.3 percent in 2012 against the dollar, accord-ing to 100-day moving average prices.

equity rally, volatility decline Hurts value of insurer equity derivativesEquity hedges used by U.S. insurers which sell vari-able annuity policies lost value in the second half of the year, filings showed. prudential financial inc. and metlife inc. reported derivative hedge losses of $1.09 billion and $1.45 billion respectively in the third quarter, led by declines in the market value of equity deriva-tives used, according to third quarter filings. The insur-ers’ hedges were dealt a double blow from an increase in equity prices and a reduction in volatility during the third quarter. Equity historical volatility, as measured by the Chicago Board Options Exchange VIX index, declined from 21.41 at the beginning of the year to a three-year low of 13.45 percent on Aug. 17, before end-ing the year at 14.56 percent.

reits add Hedges on interest rate declinesMortgage REITs reacted to declining interest rates and volatility by adding new hedges. The companies, which finance their variable-rate mortgage assets through short-term debt and repurchase agreements, use de-rivatives that benefit from increases in interest rates.two Harbors investment corp. more than doubled its use of interest rate swaps in the year to Sept. 30, to $12.1 billion from $5.8 billion. The company also bought $5.2 billion of payer swaptions, with maturities over four years, as a way to protect against a sudden increase in rates. The two largest REITs, annaly capi-tal management inc. and american capital agency corp. also increased their use of swaps.

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sovereiGn Cds PerForManCe click on the noted countries for interactive features

Government Credit swaps improved in rollercoaster YearSovereign five-year credit default swaps posted overall improvement in 2012, with only four countries worsening in the year. This heatmap shows percentage change in price grouped into color bands for each country. The worst performer was Argentina, as court wrangles with government bond holders weighed on its performance. The U.S. also lagged on fiscal and debt issues. European coun-tries, led by Austria, improved on the resolution of bailout concerns, while Middle Eastern governments lagged on political risk concerns.

Annual Percentage Change in CDS Price

ten Best performing sovereigns in 2012Credit Rating

5Y YoY % USD m YoY ChgSovereign Issuer: Best PerformingAustria 45.85 -77.15 Aaa/AA+/AAA 4,613 -22%

Denmark 35.33 -76.65 Aaa/AAA/AAA 1,985 -33%

Bulgaria 103.38 -76.40 Baa2/BBB/BBB- 583 -20%

Sweden 21.18 -75.23 Aaa/AAA/AAA 553 -5%

Belgium 85.18 -74.09 Aaa/AA/AA 4,034 -28%

Lithuania 102.42 -71.70 Baa1/BBB/BBB 479 -24%

Poland 78.81 -71.65 A2/A-/A- 1,545 -14%

Ireland 224.44 -70.26 A3/BBB+/BBB+ 17,047 -3%

Latvia 117.73 -68.72 Baa3/BBB/BBB 524 -10%

Slovakia 102.71 -67.36 Aa2/A/A+ 826 8%

CDS Net CDS Notional

ten worst performing sovereigns in 2012Credit Rating

5Y YoY % USD m YoY ChgSovereign Issuer: Worst PerformingU.S. 40.67 -27.72 Aaa/AA+/AAA 3,496 40%

Spain 281.37 -27.48 A3/BBB-/BBB 12,671 -20%

Ukraine 611.65 -26.64 Caa1/B/B 853 -6%

Egypt 540.00 -18.60 B3/B-/B+ 481 -38%

Morocco 225.00 -13.30 Ba2/BBB-/BBB-

Lebanon 447.93 -11.01 B1/B/B 506 8%

Costa Rica 310.38 1.00 Ba1/BB+/BB+

Cyprus 1020.75 2.62 B1/CCC+/BB- 307

Tunisia 360.00 21.87 Baa3/BB/BB+ 266 -7%

Argentina 1427.49 56.53 Caa1/B-/CC 1,495 -34%

CDS Net CDS Notional

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U.s. MoneY FUnd Bank HoldinGs click on tabs and buttons for interactive features

ten largest U.s. Money Funds increased euro-area, Japanese Bank Holdings in 2012

aggregated Holdings of 10 largest U.s. Money Funds ($m)nov. 30 oCt. 31 1 Year aGo 1 MontH

CHanGe1 MontH %

CHanGe1 Year

CHanGe1 Year % CHanGe

total French Banks 33,256 31,092 7,573 2,165 7% 25,683 339%

total dutch Banks 16,255 15,626 28,793 630 4% -12,538 -44%

total swiss Banks 33,825 39,071 36,042 -5,246 -13% -2,217 -6%

total swedish Banks 43,215 34,015 40,732 9,201 27% 2,483 6%

total German Banks 23,659 19,149 19,707 4,510 24% 3,952 20%

total Canadian Banks 64,844 62,593 61,682 2,251 4% 3,161 5%

total Japanese Banks 80,328 75,140 51,270 5,188 7% 29,059 57%

total British Banks 40,588 42,170 52,481 -1,582 -4% -11,892 -23%

total american Banks 56,334 58,096 37,346 -1,761 -3% 18,989 51%

total australian Banks 47,502 39,707 54,764 7,795 20% -7,262 -13%

Source: Bloomberg

$ m

illion

s

Follow Nicholas Dunbar on Twitter for regular updates and additional insights @nicholasdunbar

The ten largest U.S. money funds added holdings of European banks over 2012, according to a survey of portfolio updates by Bloom-berg: Risk. The funds added French banks over the period reversing a flight from the banks in the year before, data showed.

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Cross-asset Correlations click on tabs and buttons for interactive features

Gold, oil showed Wide range of Correlations With equities in 2012

3 M

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Three-month rolling correlations between different asset classes varied significantly throughout 2012, with correlation between gold and the S&P 500 index crossing into negative territory in the middle of the year. Correlation between oil and equities stayed about 50 percent throughout the year.

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“Every day the business press is filled with a litany of risks from political instability and economic volatility to rapid chang-es in market dynamics. Both the opportunities and the risks we face are truly unprecedented.”

– Donald Blair, CFO, Nike Inc., Dec. 20

“I think our brands were very aggressive this year to get the fuel cost down and took some yield risk to do it, and I’m sure that’s baked into their forecast. We firmly supported those decisions and there is some additional risk to it on the yield side, but we believe that profitability-wise it’s the right decision. To go beyond - a lot of these discussions are longer than one year term, and so I believe that we will see significant fuel sav-ings in 2014 as well, but whether it’ll reach this kind of level or not, I don’t know.”

– Miky Arison, CEO, Carnival Corp, Dec. 20

“My perspective is there’s a great opportunity for us in the mortgage business. And as we get more comfortable with it ourselves and make sure we understand the various levers and all the risks, you should look for it to become a more significant contributor going forward”.

– Mark Graf, CFO, Discover Financial Services, Dec. 20

“Today, the reality is that the global mar-ketplace is transitioning to a new normal environment. As market operators, we have a firsthand view of this new normal. And for different participants, it means different things. Whether it means reduced capital levels or risk appetite or a shift in the balance of power of liquidity suppli-ers or significant regulatory and operation changes facing businesses, it’s clearly a new normal.” – Duncan Niederauer, CEO NYSE Euronext, Dec. 20

“I think as you see some stability with the U.S. political and deficit situation, some stability in Europe, the systemic risk off the table, you’ll start to see eventually dollars flow into equity securities versus fixed income securities. And then we’ve seen four years of everything going into fixed income and there will be a natural transition. When that happens you’ll see people start to get rewarded for picking stocks again and willing to take risk and you’ll just see flows into the equity market and volumes will come back”.

– Richard Handler, CEO, Jefferies Group Inc. , Dec 18

“Looking forward to 2013, we have modest fuel hedging protec-tion in place and that space in Brent crude and that primarily provides catastrophic protection in a rising fuel environment. Beyond the first quarter, we expect to pay market prices for the rest of the year as we’re no longer impacted from the locked-in losses from our legacy hedge position from 2008. We’re very happy to have that behind us.”

– Tammy Romo, CFO, Southwest Airlines Co., Dec. 14

“The first de-risking really had no negative losses and to be honest, we continued for a long period. We have a little bit higher losses right now, and continue to perform quite well. I’m just making a statement that, obviously, I cannot exclude that if we sell one of these assets that we might be willing to take a larger loss at some given point in time. Our guidance, therefore, is unchanged”. – Stefan Krause, CFO, Deutsche Bank AG, Dec. 13

“We intend to accelerate our shift away from capital-intensive products to improve the risk profile and free cash flow genera-tion of the company. For example, our U.S. variable annuity sales target for the next year is approximately 40 percent below the level of sales we anticipate in 2012. Over time the resilience of our earnings stream and our continuing actions to reduce tail risk should improve the valuation of MetLife shares.”

– Steve Kandarian, CEO, MetLife Inc., Dec. 13

“We have been willing to take a loss where the impact on regulatory capital is offset or sufficiently mitigated by a reduction in risk-weighted assets. It may also make economic sense to absorb a loss on a sale if we could significantly reduce the tail risk in a portfolio. As it relates to mortgages in today’s market we don’t believe we could execute a sizeable sale without a signifi-cant negative impact on our regulatory capital ratios. In a better environment, we may in fact have an opportunity to acceler-ate mortgage sales.”

– John Gerspach, CFO, Citigroup Inc., Dec. 5

“As the regulators are finalizing the rules for the industry, one of our greatest opportunities is to continue to differentiate ourselves from the larger players, who are more complex and whose businesses rely on higher risk activities. We can also compete better than smaller banks in our markets, with a broader set of products aimed at serving traditional banking customers.”

– Kevin Kabat, CEO, Fifth Third Bancorp, Dec. 5

“We’ve seen an enormous amount of de-risking occur both at the financial institution level, as well as now at the sovereign level. And hopefully, eventually we’ll see some de-risking here in the United States and that’s core as well. However, with the risk-off mentality in place, investors are basi-cally sitting on the side lines. We’re seeing an enormous amount of cash being held by corporations, institutions, and a lot of dif-ferent players who normally would put their cash to work in the investment lifecycle.”

– Gerald Hassell, CEO, Bank of New York Mellon Corp, Dec. 5

Since November 2012, companies have been talking to investors about their risk management outlook and strategies for 2013. The Risk Brief has compiled a selection of comments. CorPorate risk oUtlook

1 2 3 4 5 6 7 8 9 10 11 12


“While we don’t think we are out of the woods in Europe, contagion risk has been reduced, major downside risk has been reduced by some of the liquidity efforts of central banks, and prices have dislo-cated to present better risk rewards. So, we feel very, very good about the bottom-up opportunity set. And 2013, there are some good things going on and there are some challenges. We do have more of our assets invested in the U.S. than what’s tra-ditional. The U.S. relative to the rest of the world has more stability. You know where the central bank’s going to be because

they told you. You know where economic growth is right now, and it can vary, but you have a sense of where it is”.

– Daniel Och, CEO, Och-Ziff Capital Management, Dec. 5

“If you look at just with where our flows are in ETFs and that’s a great public ba-rometer that everybody should be tracking every day, we are seeing more re-risking than we’ve had in the entire year. There are more flows going into equities in all areas of equity that we’re seeing in fixed income. So you’re beginning to see an unlocking of risk. People are taking on more risk”.

– Larry Fink, CEO Blackrock Inc., Dec. 5

“We’re always going to have in the back of our minds that we’re in a commodity busi-ness in a world with risk and we will be prepared to adjust - if we have for periods of time to deal with those risks as we did in 2008 and 2009, to preserve our liquidity, preserve our assets for what we are confi-dent will be a long-term positive future”.

– Richard Adkerson, Co-Chairman, Freeport-Mc-Moran Copper & Gold Inc., Dec. 5

“We’re active hedgers. We’ve always been active hedgers. As you look into next year, we have almost 500 Mmcf a day of gas already hedged at a price of about $4.18. That’s very sig-nificant. It’s not that we are trying to project commodity prices

at the end of the day. It’s really just a function of trying to pro-tect the cash flow to have our development plan going ahead. So we’re in a great position in terms of hedging, same thing on the liquid side of the equation as well. You’ll continue to see us actively hedging going forward.”

– Alan Farquharson, Senior VP of Reservoir Engineering & Economics, Range Resources, Dec. 4

“We think over time FX flows and credit flow – all of that stuff globally is going to increase, it’s very good underlying funda-mentals. You’re going to get some volatility, but we actually view it as a really good opportunity to consolidate and build market share, and we have a lot of things going for us that oth-ers don’t, and it’s why you see some people reacting in the way they are, because it’s just – it’s a competitive world out there.”-

– Douglas Braunstein, CFO, JPMorgan Chase & Co., Dec. 4

“Even in a slow growth world, we have more investment opportunities than we can possibly fund. And although our long-term growth and strategic plan remain sound, this elongated period of volatile and uncertain conditions challenges us to be even tougher prioritizers and portfo-lio managers and causes a reduction in resources and investments both in terms of CapEx and expenses to support these opportunities. Therefore, we are balancing

our plans to expand into new markets and technologies that are less risky and more near-term in their earnings delivery, especially those that are in high ROC businesses.”

– Andrew Liveris, CEO, The Dow Chemical Co., Dec. 3

“Insurance companies do a significant amount of underwrit-ing around the coast for hurricane exposure. You’re interested in concentration of risk. You’re interested in deductibles. And what’s really changed now is those same strict coastal under-writing requirements are now in states that are thousands of miles away from any coast like Oklahoma, Missouri, Minnesota because you really are then exposed through either hail, tor-nado or significant windstorms in those states that are almost as significant as a hurricane. So we’ve taken those underwrit-ing requirements and really moved them through the country with a few exceptions”.

– Jeff Dailey, CEO Farmers Group, Zurich Insurance Group AG, Nov. 30

corporate outlooK...

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PortFolio FaCtor rankinGs

style, industry, Country are important differentiators of Portfolio returnsInvestment managers assess performance and risk by looking at specific factors that drive returns. Bloomberg’s portfolio risk modelling team analyzes a global portfolio every week for different factors, PORT <GO> and a selection of rankings for different categories are presented in the tables below. For example, a country factor tracks the additional return over the global market average for stocks within a given country.

Wheat Price 26.00 0.84Nymex Oil WTI Price -8.03 -0.37

Top/Bottom Commod Factorsname type cum. change Sharpe

Top 3/Bottom 3 Currency Factorsname type cum. change SharpePolish Zloty currency 11.28 0.78Chilean Peso currency 10.01 1.16Hungarian Forint currency 9.60 0.58Brazilian Real currency -10.51 -1.12Sri Lankan Rupee currency -10.86 -1.05Argentine Peso currency -13.23 -10.10

Top 3/Bottom 3 Industry Factorsname type cum. change SharpeReal Estate industry 12.19 4.10Pharma Biotech & Life Sciences industry 10.67 1.85Diversified Financials industry 7.32 2.01Telecommunication Services industry -8.73 -1.56Utilities industry -10.01 -1.59Energy industry -10.91 -1.66

Top 5/Bottom 5 Risk-Adjusted Return Ranking by Sharpe Rationame type cum. change SharpeValue style 5.82 5.20Real Estate industry 12.19 4.10Diversified Financials industry 7.32 2.01US 5 yr swap spread Yield -28.50 1.95Pharma Biotech & Life Sciences industry 10.67 1.85Jamaican Dollar currency -6.72 -1.97Frontier Europe country -16.14 -2.18Egyptian Pound currency -2.45 -2.35Pakistan Rupee currency -8.27 -3.26Argentine Peso currency -13.23 -10.10

Top 5/Bottom 5 Spread Factorsname type cum. change SharpeMuni US Investment Grade Yield -162.89 1.01USD Cross-Over credits Yield -231.69 1.32USD High Yield Yield -232.32 1.08Sov Western Europe Yield -247.83 1.51Europe Cross-Over Yield -312.85 1.16AU 10Y-2Y spread Yield 22.85 -0.51CA 5 yr swap spread Yield 15.75 -0.89JP 5 yr swap spread Yield -4.45 0.51UK 10Y-2Y spread Yield -12.18 0.22US 10Y-2Y spread Yield -12.58 0.21

Top 3/Bottom 3 Style Factors

Value style 5.82 5.20Momentum style 1.62 0.48Profitability style 1.52 1.43Earnings Variability style -0.46 -0.44Dividend Yield style -0.54 -0.54Growth style -0.86 -0.91

name type cum. change Sharpe

Top 3/Bottom 3 Country Factorsname type cum. change SharpeGreece country 23.89 0.78Thailand country 18.38 1.77Turkey country 17.47 1.34Chile country -12.10 -1.46Korea country -14.69 -1.61Frontier Europe country -16.14 -2.18

Top/Bottom Vol Factorsname type cum. change SharpeVIX Price 2.79 0.03EURUSD 3m implied vol Price -58.80 -1.57

Top 3/Bottom 3 Yield Curve Factorsname type cum. change SharpeJP 5 yr govt Yield -15.80 1.32EU 5 yr govt Yield -44.60 0.71AU 5 yr govt Yield -48.00 0.44US 10 yr Infl breakeven yield Yield 49.87 -1.18AU 10 yr Infl breakeven yield Yield 21.30 -0.47CA 5 yr govt Yield 13.10 -0.24

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0

5

10

15

20

28/12/2011 28/02/2012 28/04/2012 28/06/2012 28/08/2012 28/10/2012

Fact

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Weekly Returns For Best and Worst Portfolio Factors, 2012

Value Growth Real EstateEnergy Greece Frontier EuropePolish Zloty Argentine Peso Linear (Real Estate)

Source: Bloomberg

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