Research Snapshot alternative investment solutions

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Research Snapshot alternative investment solutions 23 July 2012 James Skeggs james.skeggs@newedge.com Lauren Lei lauren.lei@newedge.com Lianyan Liu lianyan.liu@newedge.

1 Research Snapshot alternative investment solutions 23 July 2012 James Skeggs Lauren Lei Lianyan Liu Another cool heatmap Following our Research Snapshot Where s the heat? earlier this year, we have received a number of requests for an update covering the first half of As with the earlier paper, we will analyse the performance of managed futures strategies using manager performance from the Newedge CTA Indices, attribution data from the Newedge Trend Indicator, and simulations of the market environment for momentum strategies. Index Performance Exhibit 1 shows summary statistics for the various daily Newedge CTA indices for 2012 to the end of June and illustrates an up and down period for managed futures strategies. The year started positively with gains in January and February, but losses in March put the strategy into negative territory for the year. Strong returns in May were posted whilst global risk markets sold off strongly only to be followed by the worst monthly performance for the index since October The final trading day of June saw the worst single day performance for the Newedge CTA indices since May 2011 with the Newedge CTA Index losing -1.73%, and the Trend Sub Index losing -3.12%. The Newedge CTA Index finally ended down -0.83% for the first six months. Exhibit 1 Index Summary Statistics Jan Feb March April May June YTD Ann St Dev Newedge CTA Index 0.58% 0.87% -1.97% 0.07% 3.00% -3.27% -0.83% 6.58% Newedge CTA Trend Sub Index 1.06% 1.52% -2.26% 0.78% 2.94% -4.74% -0.94% 11.46% Newedge Trend Indicator -1.75% 2.40% -1.95% -2.72% 1.55% -9.20% % 17.70% Newedge STTI -0.24% -0.96% -1.14% 0.11% 3.15% -1.80% -0.89% 6.19% S&P 500 Total Return 4.48% 4.32% 3.29% -0.63% -6.01% 4.12% 9.49% 13.47% HFRX Global Hedge Fund Index 1.72% 1.42% -0.02% 0.12% -1.69% -0.29% 1.23% 2.57% HFRX Equity Hedge Index 2.07% 1.42% 0.40% -0.09% -3.07% 0.52% 1.18% 4.50% Prime Clearing Services Investor Research Galen Burghardt galen.burghardt@newedge.com Ryan Duncan ryan.duncan@newedge.com Alex Hill alex.hill@newedge.com Chris Kennedy chris.kennedy@newedge.com Lauren Lei lauren.lei@newedge.com Lianyan Liu lianyan.liu@newedge.com James Skeggs james.skeggs@newedge.com Brian Walls brian.walls@newedge.com Tom Wrobel tom.wrobel@newedge.com Source: Newedge Alternative Investment Solutions, Bloomberg A closer look at the weekly performance of the Newedge CTA Index and Trend Sub Index, as shown in Exhibit 2, highlights some interesting observations both within the year, and in a historical context. q The last week in May saw a particularly large gain for the Newedge CTA Trend Sub Index, and when combined with the prior week, represented the 3rd best fortnight s return since Dec 2003 returning +5.91% in that 2 week period. q The period 3rd March to 20th April saw the Newedge CTA Index being down 5 weeks running, which is particularly unusual. This has only happened 5 times since index inception in Jan 2000, and the last time was Dec q In the 11 week period spanning March, April, and May 2012, the Newedge CTA Trend Sub Index had negative performance in 9 out of 11 weeks. This is also extremely unusual, only having been observed twice before in the index data: Apr/May/Jun 2004, and Mar/Apr/May newedge.com

2 another cool heatmap 2 Return H Performance Contribution 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% -1.00% -2.00% -3.00% 2012 YTD Return 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% 1% 0% -1% -2% -3% -4% -5% -6% -7% Exhibit 2 Newedge CTA Indices Weekly Returns (H1 2012) Source: Newedge Alternative Investment Solutions 06-Jan 13-Jan 20-Jan 27-Jan 03-Feb 10-Feb 17-Feb 24-Feb 02-Mar 09-Mar 16-Mar 23-Mar 30-Mar 05-Apr 13-Apr 20-Apr 27-Apr 04-May 11-May 18-May 25-May 01-Jun 08-Jun 15-Jun 22-Jun 29-Jun Newedge CTA Index Date Newedge CTA Trend Sub Index Exhibit 3 Newedge CTA Index Constituent Manager Performance (H12012) Source: Newedge Alternative Investment Solutions 2% 4% 6% 8% 10% 12% 14% 16% 18% 2012 Volatility (Annualised) Trend Following Strategies Non Trend Following Strategies Exhibit 4 Newedge Trend Indicator 2012 YTD Performance Attribution by Sector Constituent Manager Performance Whilst the Newedge CTA Index represents the average performance of the constituents, it is important to consider the individual manager returns. Exhibit 3 shows the year to date returns for the individual constituents of the Newedge CTA Index, and the volatilities associated with those returns. So far in 2012, the Non Trend strategies have tended to exhibit a lower volatility than their trend following counterparts with 9 out of 13 of these having a volatility of less than 10% (vs. 1/7 of the trend followers). Despite this, the return dispersion for the non trend strategies has been much higher than for the trend strategies with both the worst and best performers being from this subset of strategies. Attribution Data from Newedge Trend Indicator We can use the data available to us through the Newedge Trend Indicator to further look at returns of trend following strategies. Exhibit 4 shows the performance attribution by sector for the Newedge Trend Indicator for the first half of 2012 which highlights a very difficult period for the model in general with 4 out of 5 sectors losing money. Currencies in particular have been a significant negative contributor to performance. We can drill down further into individual market performance as shown in Exhibit 5. The best contributor to performance was Crude Oil, which went short in mid May. The worst performing markets were the higher yielding currencies (NZD, MXN, and AUD), which the model was long from late January until mid February whilst they all fell against the US Dollar. The US 5 year position also had negative performance as it experienced a perfect whipsaw by going short very near the low in mid March, and only reverting to long again in mid April missing half of the upward move. -8% -9% Source: Bloomberg, Newedge Alternative Investment Solutions Commodities Equity Indices Currencies Interest Rates Bond Futures Sector

3 another cool heatmap 3 H Performance Contribution 1.5% 1.0% 0.5% 0.0% -0.5% -1.0% -1.5% -2.0% -2.5% Exhibit 5 Newedge Trend Indicator 2012 YTD Performance Attribution by Market Source: Bloomberg, Newedge Alternative Investment Solutions Cocoa Coffee Copper Corn Cotton #2 Crude Oil Gold Heating Oil Lean Hog Live Cattle Natural Gas RBOB Silver Soybean Oil Soybeans Sugar #11 Wheat CAC 40 DAX DJIA Mini Euro STOXX 50 FTSE 100 Hang Seng IBEX 35 KOSPI MIB NASDAQ 100 Mini Nikkei 225 Russell 2000 Mini S&P 500 E-mini SPI 200 Swedish OMX Australia Dollar British Pound Canadian Dollar Euro Japanese Yen Mexican Peso New Zealand Dollar Swiss Franc Australian 3 Month Euro 3 Month Rate (Euribor) Japan 3 Month UK Short Sterling US 3 Month Rate (Eurodollar) Australian 10 Year German 10 Year (BUND) German 2-year (SCHATZ) German 5 Year (BOBL) Japan 10 Year (JGB) UK 10 Year (Gilt) US 10 Year US 2 Year US 30 Year US 5 Year Market In one of our Research Snapshots last year How many trades are there currently? we introduced a method for calculating the degree of portfolio position concentration in the Newedge Trend Indicator. We begin by calculating a Sector Position Concentration (SPC) value for each of the 5 sectors (each will have a value of between 0 and +1). A sector where all markets have the same direction would have an SPC of +1 (where there is no bias to being either long, or short the SPC = 0). The Portfolio Position Concentration (PPC) metric also has a value between 0 and +1, and is calculated by weighting the individual SPC values by the number of markets that sector represents in the portfolio. PPC = 1 Indicates all sectors have a sector portfolio concentration of +1 (all markets positioned the same) PPC = 0 Indicates all sectors have a sector portfolio concentration of 0 (no bias towards any positioning) Portfolio Position Contribution Exhibit 6 Portfolio Position Concentration for the Newedge Trend Indicator 0 Oct-2002 Oct-2003 Oct-2004 Oct-2005 Oct-2006 Exhibit 6 shows the PPC calculation since October Of particular note is the high level that the PPC value reached during June At this time, all equity contracts were short, all interest rate and bond futures contracts were long, 7/8 FX contracts were short (JPY was long), and 16 of the 17 commodity markets were short (Soybeans were long). This level of concentration of positions is extremely unusual, and was only last at this level in Momentum Model Simulations It is important to be aware that the Newedge Trend Indicator is only one specific set of parameters for a moving average crossover system, namely using 20-day fast and 120-day slow moving averages, and Source: Newedge Alternative Investment Solutions individual managers who have varied model / parameter sets may have differed significantly. In order Oct-2007 Oct-2008 Oct-2009 Oct-2010 Oct-2011 Date to look at performance across parameter sets (and so across holding periods), we use a series of simple momentum models calculated using the following rules: q q If Closing Price >= Closing Price x days ago, then go long at tomorrow s close If Closing Price < Closing Price x days ago, then go short at tomorrow s close We applied the above rules for values of x from 5 to 400 in intervals of 5 days employing the continually adjusted futures series that we use for the Newedge Trend Indicator. The markets are equally volatility weighted. This gives us a total of 4,400 model / market combinations. Exhibit 7 is a heat map showing the opportunity-set available during the first half of 2012, with the horizontal axis showing the 55 different individual markets, and the vertical axis representing the various look-back intervals (values

4 another cool heatmap 4 of x). Squares that are coloured yellow or red illustrate a positive return for that specific model / market combination, green colouring illustrates flat performance, and blue shades highlight negative returns. At a glance, the heat map appears to be predominantly green and light blue, and indeed the average return for each of the 4,400 model / market combinations was -0.19%. The largest gain for anyone of these combinations was 1.51%, and was experienced by a 15 day look back in Nikkei. The largest loss was -10% for a 5 day look back for the Japan 3 Month, and outside the interest rate sector, it was -3% for Cocoa with a 35 day look back. Analysing the heat map vertically (i.e. the returns for a given market across all parameter sets) suggests the importance of market selection. Continuing the main theme from last year, the best sector remains the bond futures, however at a level of returns significantly below last year. The coolness of the colours in the right of the heat map shows that, irrespective of which look-back parameters were used, there was a significantly reduced opportunity- set for these models in the interest rate sector. The currency sector in the middle-right of the chart exhibits very cool colours, particularly around the day look back range. Supporting the data from Exhibit 5 above, the dark blue coloured boxes in the day look back highlight the challenges for both the Mexican Peso, and New Zealand Dollar. The equity and commodity sectors exhibit a mixture of performance with some model / market combinations performing well and others poorly, though it is very parameter dependent. Conclusion In this paper we have analysed the performance of the Newedge CTA index family for the first half of 2012, and observe a small decline for CTAs in aggregate. A closer look at the weekly performance of the indices highlights a year of ups and downs, both within the year, and in an historical context. The returns of individual investors may have differed from the index returns, however it does not appear that returns were any more dispersed than usual for these strategies. The dispersion of individual returns for the first half of 2012 is close to the average of what has been observed since the index start date in The return dispersion was higher however for non trend strategies (vs. trend strategies) with both the worst and best performers being from this subset of strategies even though they tended to exhibit a lower volatility than their trend following counterparts. We used the attribution data provided by the Newedge Trend Indicator to analyse which sectors and markets had the greatest contribution to the model return, and we highlighted a difficult period for the model in general with 4 out of 5 sectors losing money. Currencies, in particular the higher yielding ones, have been a significant negative contributor to performance. We observed a very high level of position concentration within the Newedge Trend Indicator positions in June 2012 with a PPC value of This level of concentration of positions is extremely unusual, and was only last at this level in By creating a series of simple momentum models in order to look at returns across parameter-sets, we can conclude that there were very few model / market combinations that would have been particularly profitable in H In contrast, there were plenty that would have lost money (365 combinations would have lost more than 1%).

5 another cool heatmap 5 Look-back Parameter Exhibit 7 Heat Map of Model / Market Combination Returns for H IR Japan 3 Month IR UK Short Sterling IR Australian 3 M IR Euro 3 M Rate IR US 3 M Rate IR Australian 10 Y IR UK 10 Year (Gilt) IR US 30 Year IR US 10 Year IR US 5 Year IR US 2 Year IR Japan 10 Y IR German 10 Year IR German 5 Y IR German Schatz FX Swiss Franc FX Mexican Peso FX New Zealand $ FX Japanese Yen FX Euro FX Canadian $ FX British Pound FX Australia Dollar EQ FTSE 100 EQ SPI 200 EQ Euro STOXX EQ MIB EQ Russell 2000 Mini EQ Swedish OMX EQ NASDAQ 100 Mini EQ Nikkei 225 EQ KOSPI EQ IBEX 35 EQ Hang Seng EQ DAX EQ S&P 500 E mini EQ DJIA Mini EQ CAC 40 CM RBOB CM Wheat CM Silver CM Sugar #11 CM Soybeans CM Natural Gas CM Lean Hog CM Live Cattle CM Coffee CM Heating Oil CM Copper CM Gold CM Cotton #2 CM Crude Oil CM Cocoa CM Corn CM Soybean Oil Source: Bloomberg, Newedge Alternative Investment Solutions Market Return

6 another cool heatmap 6 Newedge does and seeks to do business with companies that may be covered in its research reports. As a result, investors should be aware that Newedge might have a conflict of interest. For the avoidance of doubt, investors should note that this research report is not objective and is a marketing communication as defined by the Markets in Financial Instruments Directive ( MiFID ). For more details, see MiFID policies on our website at This report is for information purposes only, subject to change without notice and not to be constructed as a solicitation or offer to buy or sell any financial instruments or securities. Newedge makes no representation or warranty that the information contained herein is accurate, complete, fair or correct or that any transaction is appropriate for any person and it should not be relied on as such. Subject to the nature and contents of this report, the investments described are subject to fluctuations in price and/or value and investors may get back less than originally invested. Certain high volatility investments can be subject to sudden and large declines in value that could equal or exceed the amount invested. Futures and options, as well as certain other financial instruments, are speculative products and the risk of loss can be substantial. Consequently only risk capital should be used to trade futures and options and other speculative products. Investors should, before acting on any information herein, fully understand the risks and potential losses and seek their own independent investment and trading advice having regard to their objectives, financial situation and needs. This report and the information included are not intended to be construed as investment advice. Any forecasts are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. Newedge accepts no liability for any direct, indirect, incidental or consequential damages or losses arising from the use of this report or its content. This report is not to be construed as providing investment services in any jurisdiction where the provision of such services would be illegal. The opinions and views expressed in this report reflect the personal views of the author(s), are subject to change without notice and do not necessarily reflect the views of Newedge. Newedge, its officers, directors and employees may from time to time have positions, make markets or effect transactions in any investment or related investment covered by this report. All information as well as references to prices and yields are subject to change without notice. Past results are not necessarily an indication of future performance. This communication is intended only for use by the individual or entity to which it is addressed and may not be used in any way by or provided in whole or in part to any other person or entity. Please note that this analysis or report is not meant for distribution to retail clients domiciled in Singapore (i.e. a person who is not an accredited investor, expert investor or institutional investor as defined under the Financial Advisers Act). For matters relating to these analyses or reports, Singapore recipients should contact the Singapore office by to disclaimer-singapore-contact@ newedge.com. If these reports are prepared by a Newedge entity outside of the United States these reports are issued solely to major US institutional investors pursuant to SEC Rule 15a-6. Any US person wishing to discuss this report or effect transactions in any security discussed herein may do so with or through Newedge USA, LLC, 630 Fifth Avenue, Suite 500, New York, New York (646) Only Newedge USA, LLC is a member of FINRA and SIPC (although SIPC only pertains to securities-related transactions and positions). Newedge USA, LLC is a US Broker-Dealer and Futures Commission Merchant. Newedge USA, LLC does not guarantee the settlement of any trade executed pursuant to SEC Rule 15a-6. THE DISTRIBUTION OF THIS REPORT IN CERTAIN JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW AND PERSONS WITH ACCESS TO THIS REPORT MUST OBSERVE ANY SUCH PROHIBITIONS AND RESTRICTIONS. BY ACCEPTING THIS REPORT YOU AGREE TO BE BOUND BY THE FOREGOING. Newedge refers to Newedge Group SA and all of its worldwide branches and subsidiaries. Newedge Group in France and its foreign branches are authorized by the Autorité de Contrôle Prudentiel and Autorité des Marchés Financiers in France. Newedge UK Financial Limited is authorized and regulated by the Financial Services Authority. Newedge Group (Frankfurt, Zurich, Geneva and Dubai branches) and Newedge UK Financial Limited do not deal with, or for, Retail Clients (as defined under MiFID, FSA rules and Dubai Financial Services Authority). Only Newedge USA, LLC is a member.

CONSOLIDATED SCHEDULE OF INVESTMENTS (Unaudited) June 30, 2017

CONSOLIDATED SCHEDULE OF INVESTMENTS (Unaudited) June 30, 2017 SHARES VALUE EXCHANGE-TRADED FUNDS - 10.2% Guggenheim Ultra Short Duration ETF 1 108,400 $ 5,452,520 Total Exchange-Traded Funds (Cost $5,429,550)