the waterside convention 2011 - amundi volatiliteit presentatie

Volatility as antithesis:risk or performance ??

Amsterdam, 27 January 2011

Alex Drabowicz, CAIAVolatility Product Specialist

This material is solely for the attention of "professional” investors (see more details and definitions at the back).

Amsterdam Volatility 2011 - page 2

About Amundi and the volatility expertise

Amundi Volatility team

Investment team based in Paris run by Gilbert Keskin/Eric Hermitte since 2000Track record directional funds since 2005Significant AuM of € 4.6 billion Innovation Awards France 2005, EuroHedge 2008/2009/2010

Amundi Funds Volatility World Equities

UCITS III, daily liquidity, Actively Managed Equity Volatility Fund Bloomberg ticker CAMVWIA LX Cost efficient replication of 1 year implied volatility, not VIX Using listed options and futures, with clearinghouse as counterparty Performances 2008 +25.84%, 2009 +8.53%, 2010 +5.10% Assets: USD 1.3 billion

Source: Amundi, assets as of 31/12/2010 on directional volatility funds: Amundi Volatilité Actions Euro (French FCP), Amundi Funds Volatility Euro Equities and Amundi Funds Volatility World Equities (Lux SICAV).


1. Passive approach: for risk

2. Active approach: for performance

3. Outlook

Table of Contents

Amsterdam Volatility 2011 - page 4Sources: Amundi, Bloomberg

Volatility: An asset class in its own right

Volatility tends to rise when equity markets fall, providing diversification and decorrelation

Equities vs. equities volatility: – Long term negative correlation: -0.70 = ideal for risk management

0

10

20

30

40

50

60

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Jan-00 Feb-01 Mar-02 Apr-03 May-04 Jun-05 Jul-06 Aug-07 Sep-08 Oct-09 Nov-10

VIX

600

700

800

900

1000

1100

1200

1300

1400

1500

1600

S&P5

00

VIX Index

S&P500


Volatility products: VIX Futures 1/3Futures on VIX: ideal for hedging

VIX spot index is a theoretical calculation and is NOT a tradable indexVIX indices have historically traded in “contango” markets: significant rolling costsPopular instrument to “hedge” an equity portfolio

Source: Bloomberg

Jan 11, 2011: Contango is magnified


0

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Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10

VIX

Spot

Lev

el %

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100

200

300

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VXX

ETN

Pric

e Le

vel

VIX Spot

VXX ETN

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100

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Mar-04 Nov-04 Jul-05 Mar-06 Nov-06 Jul-07 Mar-08 Nov-08 Jul-09 Mar-10 Nov-10

Bas

e 10

0 M

arch

200

4

VIX Spot

VIX Futures

+2%

-76%

Volatility products: VIX ETN 2/3

VIX Futures: using first maturity, rolled 3 days prior to expiry, adjusted for the price difference

Source: BloombergAs of 31/12/2010

Provides negative correlation but at a high cost

VIX Futures vs. VIX Spot since 2004 show the effect of contango VIX ETN suffer also from the same effect as it is based on the VIX futures

-58%

-91%


Volatility products: VIX futures ETF 3/3

Source: www.source.info

Passive volatility exposure is a losing game

Costly portfolio tool & expected performance to be negative over the long term


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0.5

1.0

1.5

2.0

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3.0

3.5

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10

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bill

ions

VXX AUM VXZ AUM

Volatility products: Large inflows in passive products

Source: Amundi, Bloomberg

The AUM in volatility ETNs exceeds $ 2 billion

While the demand in 2009 was directed to the VXX (short-term VIX futures); VXZ (medium-term VIX futures) has become more popular


1. Passive approach

2. Active approach

3. Outlook

Table of Contents


Volatility: its mean reverting behavior

Using market turbulence as a source of added value

Volatility behaves like an elastic band Over the long term, volatility has a strong mean reverting behaviour

Sources: Amundi, Deutsche BankPast market behaviours are not a guarantee for future behaviours.

10%

15%

20%

25%

30%

35%

40%

45%

50%

Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10

1yr implied volatility SP500

1yr implied volatility DJ Euro

1yr implied volatility Nikkei225Excessive Levels:

« expensive »

Average regime

Low Levels

“ Cheap “

► By buying and selling volatility, the management teamtransforms uncertainty about the markets into returns


950

1050

1150

1250

1350

1450

Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10

Amundi Funds Volatility World Equities Performance Inception date: 15 November 2007Assets under Management: USD 1.3 billion (as of 31/12/2010)

Sources: Amundi. Net performance as of 31/12/10. Institutional Accumulation shares. Past performance does not prejudge future results, nor is it a guarantee of future returns

Amundi Funds Volatility World Equities I (C) Net – Monthly Performance Bloomberg ticker: CAMVWIA LX

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year

2010 (0.64)% (0.32)% (0.77)% 1.27% 4.69% 0.48% 0.67% 0.77% (0.07)% (0.85%) 0.55% (0.69%) 5.10%

2009 0.90% 1.30% (1.63)% 4.74% 3.12% 0.55% 0.31% 0.51% (0.54)% 0.19% 0.02% (1.09)% 8.53%

2008 5.73% 1.58% 1.71% (4.44)% 1.84% 1.17% (0.63)% 0.96% 5.49% (3.51)% 4.17% 9.98% 25.84%

2007 0.45% (0.91)% (0.47)%

Amundi Funds Volatility World EquitiesI Share Net Performance 15/11/07 – 31/12/10

Dec-10


How the fund performed in different environments

Amundi Funds Volatility World Equities* has performed well against the MSCI World** in several market configurations:

Market Fund Volatility Performance

Start End Bull/Bear Exposure Fund Market

15-Nov-07 31-Dec-07 Bull Long Vol -0.5% +0.2%2-Jan-08 7-Oct-08 Bear Long Vol +15.6% -34.1%8-Oct-08 9-Mar-09 Bear Short Vol +9.1% -31.4%10-Mar-09 27-Jul-09 Bull Short Vol +6.2% +42.3%28-Jul-09 10-Apr-10 Bull Long Vol -3.8% +20.8%12-Apr-10 31-Dec-10 Bull Long Short Vol +7.4% +4.7%

14-Nov-06 31-Dec-10 Bull & Bear Long & Short Vol

+42.9% -19.2%

Source: Amundi, Bloomberg. Net Performance * Amundi Funds Volatility World Equities (Lux SICAV):Bloomberg ticker CAMVIA LX / MSCI World: Bloomberg ticker: MXWOPerformance based on daily date. Correlation based on weekly data.Past performance does not prejudge future results, nor is it a guarantee of future returns** The MSCI World is not the reference indicator of the Sub-fund and it is used only for information purposes

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Diversification benefits across all asset classes

Amundi Funds Volatility World Equities* shows low correlation:

Source: Amundi, Bloomberg. Net Performance * Amundi Funds Volatility World Equities (Lux SICAV): Bloomberg ticker CAMVIA LX, data from 13/11/2007 to 12/31/2010Correlation based on weekly data. Past performance does not prejudge future results, nor is it a guarantee of future returns

Broad Asset Classes

AmundiFD-VOLATIL

WORLD

S&P 500 Index 0.030MSCI WORLD 0.078S&P GSCI Tot Return 0.062HFRX Global Hedge -0.162JPM Global Bonds 0.197

HFRX classesAmundi

FD-VOLATILWORLD

HFRX Global -0.162HFRX Macro -0.080HFRX Systematic -0.260HFRX Equity Market Neutral -0.263HFRX Equity Hedge -0.133


1. Passive approach

2. Active approach

3. Outlook

Table of Contents


Volatility environment 1/2

Source: BofA Merrill Lynch Global Research. Data as of 2 Dec 10.

Equity volatility is currently one of the least stressed risk measures across asset classes


Volatility environment 2/2

Source: Morgan Stanley, Quantitative and Derivatives Strategies Dec2010.

European Financial CDS and Equity Implied Volatility is diverging


Outlook for 2011: 3 scenarios can be drawn

Central scenario 1: volatility stays moderately volatile (2007-2008)

1yr implied volatility trades between 20/25%, with possible spikes above 25% triggered by tension on long term rates, FX imbalances, inflation surprises, sovereign risks – Directional funds: can perform in line with objective

Alternative scenario 2: volatility below 20% (2004 or H2 2006)

1yr implied volatility falls below 20% as a virtuous circle unfolds: current debt crisis is solved by higher growth thanks to government and central banks measures, unemployment goes down, consumption resumes.– Directional funds: suffer as a result of long volatility exposure

Alternative scenario 3: a new crisis emerges

1yr implied volatility spikes around 30%: sovereign default or downgrade (outside PIIGS), FX realignments, asset bubble, emerging market over-heating, Eurozone split, protectionism– Directional funds: performance can exceed its objective


Appendix: track records

Table of Contents


Bloomberg ticker: CAVEQAI LX

Bloomberg ticker: CAMVWIA LX

Monthly track-records

Sources: AmundiPast performance does not prejudge future results, nor is it a guarantee of future returns

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This document contains information about Amundi Funds Volatility Euro Equities, Amundi Funds Volatility World Equities and Amundi Funds Dynarbitrage Volatility (the “Sub-Fund”), three sub-funds of Amundi Funds (the“Sicav”), an undertaking for collective investment in transferable securities existing under Part I of the Luxembourg law of 20 December 2002, organised as a société d’investissement à capital variable and registered with the Luxembourg Trade and Companies Register under number B68.806. The SICAV has its registered office at 5, allée Scheffer, l-2520 Luxembourg.Amundi Funds has been authorised for public sale by the Commission de Surveillance du Secteur Financier in Luxembourg.Not all sub-funds of the SICAV (the "Sub-Funds") will necessarily be registered or authorized for sale in all jurisdictions or be available to all investors.Subscriptions in the Sub-Funds will only be accepted on the basis of the SICAV’s latest complete and simplified prospectuses, its latest annual and semi-annual reports and its articles of incorporation that may be obtained, free of charge, at the registered office of the SICAV or respectively at that of the representative agent duly authorized and agreed by the relevant authority of each relevant concerned jurisdiction.Consideration should be given to whether the risks attached to an investment in the Sub-Funds are suitable for prospective investors who should ensure that they fully understand the contents of this document. A professional advisor should be consulted to determine whether an investment in the Sub-Funds is suitable.The value of, and any income from, an investment in the Sub-Funds can decrease as well as increase. The Sub-Funds have no guaranteed performance. Further, past performance is not a guarantee or a reliable indicator for current or future performance and returns. The performance data do not take account of the commissions and costs incurred on the issue and redemption of units.This document does not constitute an offer to buy nor a solicitation to sell in any country where it might be considered as unlawful, nor does it constitute public advertising or investment advice.

Amundi, French joint stock company (“Société Anonyme”) with a registered capital of € 578 002 350 and approved by the French Securities Regulator (Autorité des Marchés Financiers-AMF) under number GP 04000036 as a portfolio management company90 boulevard Pasteur -75015 Paris- France – 437 574 452 RCS Paris.

www.amundi.comwww.amundi-funds.com

This material is solely for the attention of institutional, professional, qualified or sophisticated investors and distributors. It is not to be distributed to the general public, private customers or retail investors in any jurisdiction whatsoever nor to “US Persons”.Moreover, any such investor should be, in the European Union, a “Professional” investor as defined in Directive 2004/39/EC dated 21 April 2004 on markets in financial instruments (“MIFID”) or as the case may be in each local regulations and, as far as the offering in Switzerland is concerned, a “Qualified Investor”within the meaning of the provisions of the Swiss Collective Investment SchemesOrdinance of 23 June 2006 (CISA), the Swiss Collective Investment Schemes Ordinance of 22 November 2006 (CISO) and the FINMA’s Circular 08/8 on Public Offering within the meaning of the legislation on Collective Investment Schemes of 20 November 2008. In no event may this material be distributed in the European Union to non “Professional” investors as defined in the MIFID or in each local regulation, or in Switzerland to investors who do not comply with the definition of “qualified investors” as defined in the applicable legislation and regulation.

Disclaimer


This material is provided for information purposes only and does not constitute a recommendation, a solicitation, an offer, an advice or an invitation to purchase or sell any fund, SICAV, sub-fund, (“the Funds”) described herein and should in no case be interpreted as such.This material, which is not a contract, is based on sources that Amundi considers to be reliable. Data, opinions and estimates may be changed without notice.Amundi accepts no liability whatsoever, whether direct or indirect, that may arise from the use of information contained in this material. Amundi can in no way be held responsible for any decision or investment made on the basis of information contained in this material.The information contained in this document is disclosed to you on a confidential basis and shall not be copied, reproduced, modified, translated or distributed without the prior written approval of Amundi, to any third person or entity in any country or jurisdiction which would subject Amundi or any of “the Funds”, to any registration requirements within these jurisdictions or where it might be considered as unlawful. Accordingly, this material is for distribution solely in jurisdictions where permitted and to persons who may receive it without breaching applicable legal or regulatory requirements.Not all funds, or sub-funds will be necessarily be registered or authorized in all jurisdictions or be available to all investors.Investment involves risk. Past performances and simulations based on these, do not guarantee future results, nor are they reliable indicators of futures performances.The value of an investment in the Funds, in any security or financial product may fluctuate according to market conditions and cause the value of an investment to go up or down. As a result, you may lose, as the case may be, the amount originally invested.All investors should seek the advice of their legal and/or tax counsel or their financial advisor prior to any investment decision in order to determine its suitability.It is your responsibility to read the legal documents in force in particular the current French prospectus for each fund, as approved by the AMF, and each investment should be made on the basis of such prospectus, a copy of which can be obtained upon request free of charge at the registered office of the management company.

Amundi, French joint stock company (“Société Anonyme”) with a registered capital of € 578 002 350 and approved by the French Securities Regulator (Autorité des Marchés Financiers-AMF) under number GP 04000036 as a portfolio management company90 boulevard Pasteur -75015 Paris- France – 437 574 452 RCS Paris.

www.amundi.com

Disclaimer

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