Statistical Arbitrage How to diversify to generate Alpha Table of Contents I. Executive summary II. Investment Strategies III. Advantages of our system IV. Performance 2013 V. Performance since inception VI. How our trading system works VII. BNP: Beta Neutral Portfolio VIII. GYC: Introducing Global Yield Curves IX. GYC: Yield Curve Strategies X. GYC: Pairs trading long term rates XI. GYC: Risk Management XII. GYC: Performance XIII. Why diversification? XIV. Alpha generator XV. Portfolio Revisions XVI. Questions and answers XVII.Investor Contacts XVIII.Disclaimer Page 3 4 5 6 7 8 10 11 12 13 14 15 16 17 18 19 20 21 2 Executive Summary 3 Investment Strategies It has been proven that long only and static asset allocation methodologies are incapable of enduring the peak-to-through decline of the markets. 4 Advantages of our system 5 Performance - 2013 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% -10.0% S & P 500 T otal R eturn Hang S eng TR Z J P M As ian B ond Index Key statistics Return (Jan’ 13 – Apr’13) Return (Annualised) Std Dev (Annualised) Sharpe Ratio Sortino Ratio Alpha (Annualised) Beta (vs S&P500) 18.28% 55.91% 17.01% 3.29 8.39 57.27% -4.49% Max Drawdown VaR (Montecarlo @ 99.9%) -1.71% -5.50% Correlations TRZ vs S&P500 TRZ vs Hang Seng TRZ vs JPM Asian Bond Index -10.60% 7.60% -2.95% 6 Performance – Since inception 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% -5.0% S & P 500 T otal R eturn Hang S eng TR Z J P M As ian B ond Index Key statistics Return (Inception – Apr’13) Return (Annualised) Std Dev (Annualised) Sharpe Ratio Sortino Ratio Alpha (Annualised) Beta (vs S&P500) 35.13% 52.13% 15.67% 3.33 4.52 54.36% -10.06% Max Drawdown VaR (Montecarlo @ 99.9%) -2.54% -6.40% Correlations TRZ vs S&P500 TRZ vs Hang Seng TRZ vs JPM Asian Bond Index -19.76% -0.19% -11.11% 7 How our trading system works 8 How our trading system works 9 BNP: Beta Neutral Portfolio The BNP strategy assumptions are fairly easy to assess. From a mathematical point of view we apply part of the propositions theorized by Frazzini and Pedersen in their last paper. The remaining part is a proprietary model. 10 GYC: Introducing Global Yield Curves 11 GYC: Yield Curve strategies Parallel shift 3.0% 2.5% Yield To Maturity GYC captures most yield curve movements  Parallel shifts, steepening/flattening, butterfly trades  Returns on same assets but low correlation  Positive carry and duration neutrality  Directional in the level, slope and convexity 2.0% 1.5% T T+1 1.0% 0.5% 0.0% 2Y 5Y 10Y Maturity 30Y Source: Diarch Research Flattening Convexity Increase 3.0% 2.5% 2.5% 1.5% Yield To Maturity Yield To Maturity 2.0% T+1 T 1.0% 0.5% T+1 1.5% T 1.0% 0.5% 0.0% 0.0% 2Y Source: Diarch Research 12 2.0% 5Y 10Y Maturity 30Y 2Y Source: Diarch Research 5Y 10Y Maturity 30Y GYC: Pairs Trading long term rates 13 GYC: Risk Management 14 Performance Since we started diversifying among strategies our trading system has consistently produced average returns around with very low draw downs. To achieve these returns we use a leverage of around 5 times the AUM which guarantees a very good trade-off between risk and returns. If the investor can afford a higher risk appetite this can be increased. 15 Why diversification? 16 Alpha Generator 83% Positive Alpha 1.200% 1.000% 17% Negative Alpha 0.800% 0.600% 0.400% 0.200% 0.000% -0.200% 0 50 100 150 200 -0.400% -0.600% 17 Portfolio Revisions 18 Questions & Answers 19 Contacts Jos Van Trier Partner and founder +31 (0) 888 723 900 [email protected] Giancarlo Cobino Fund Manager + 31 (0) 208 083 863 [email protected] [email protected] www.trzfunds.com 20 Disclaimer 21