Marshall Wace TOPS UCITS Fund (Market Neutral)

Transcription

1 INVESTMENT OBJECTIVE The seeks to deliver consistent absolute returns by capturing the alpha resident within investment banks, research boutiques and local brokers worldwide via proprietary optimization and risk management techniques. The Fund aims to generate an annualised return (after payment of fees and expenses) of 8%-0% with low volatility target of 3%-5%. HISTORICAL PERFORMANCE FUND DESCRIPTION The offers investors access to the unique Market Neutral TOPS strategy with the benefits of limited exposure to systematic risk. MW TOPS is a unique investment process which captures the idea flow of approximately,200 individuals worldwide in real time. Through proprietary optimisation techniques and robust risk management processes, the MW TOPS European portfolios 3 have delivered consistently strong performance since July 2002 with high success ratios and minimal sectoral, country or market cap risk. MW TOPS has a proven track record of alpha generation in a variety of market conditions. Marshall Wace has been operating a successful market neutral strategy within the European TOPS applications since October EUR C (acc) Price per Share EONIA 2 HFRX Equity Market Neutral Index Fund performance is based on official daily valuations, shown since inception of share class., Factset FUND COMMENTARY Equity Market Overview and Fund Performance As we have highlighted throughout this year, the trading and investing environment during 20 has been challenging for the vast majority of equity investors. Continued economic uncertainty has been compounded by sovereign debt concerns across the developed world emanating largely from southern Europe. Correlations have once again spiked and traditional investment styles such as value and momentum have experienced significant variance in returns. However, against this backdrop, there continue to be idiosyncratic stock selection opportunities across the market capitalisation bands and across multiple geographies. To put the Fund's returns into context, the table below shows the performance of the strategy against its benchmark** over 20 and since its inception on 28 December The Fund* has delivered net performance of +3.46% during 20. This compares favourably to the equity market** which fell -9.72% over the last year and the HFRX Equity Market Neutral Index which has depreciated by -2.98%. This return has been delivered with a fraction of the volatility of the market. Since inception, the Fund* has returned +5.95% net with a volatility of 3.76%, against the market index** which is down % with a volatility of 26.20% and the HFRX Equity Market Neutral Index which has fallen -7.03% over the same period. Period Fund* Net Return Market Index** Return Fund* Volatility Market Index** Volatility HFRX Equity Hedge Index Return M 0.76% 0.60%.29% 7.34% 0.2% % -9.72% 2.36% 22.65% -2.98% Since Inception (28 Dec 2007) 5.95% % 3.76% 26.20% -7.03% The strategy continues to display minimal correlation to the European equity market, as targeted. Since inception to the end of December 20, the Fund s* correlation of daily returns to the market** was negligible at Market Environment As repeatedly highlighted by our contributors during the year, valuation spreads within and across sectors have been extended. Moreover, the predominance of index-based and derivative flow exacerbated market inefficiencies and created out-sized opportunities in large cap equities. Crowding within the asset class fell considerably as a result of the decline in committed capital from bank proprietary desks, decreased hedge fund activity and low levels of leverage. In the past year, TOPS has benefited from these conditions and opportunities while mitigating exposure to macro and political risks, resulting in positive returns. However, performance has been below the level we typically strive to deliver to our investors. The principal reason for this is that we have managed risk conservatively, with the realised volatility falling below the lower end of our target volatility band. share classes other than EUR C (acc) may receive but is for information purposes to illustrate the performance of the (the "Fund") and should be interpreted 2 The Euro OverNight Index Average, overnight rate computed as a weighted average of all overnight unsecured lending transactions in the interbank market, initiated within the euro area by the contributing panel banks. 3 Inception of European TOPS: July 2002; inception of Americas TOPS: February 2005; inception of Asian TOPS: June 2006; inception of Global TOPS: May 2007; inception of Market Neutral TOPS: November 2007 *-- Share Class A Acc. Euro (inception date: 28 December 2007) ** MSCI AC Daily TR Net Europe Local Index Source: Morgan Stanley Capital International Inc. ( MSCI ), Hedge Fund Research Inc. ( HFR ), Société Générale Securities Services Luxembourg

2 FUND COMMENTARY TOPS Developments Over the past three years we have made significant changes and improvements to the TOPS portfolio optimisation and construction processes. In addition, we have invested heavily in our contributors via an intensive process of dialogue and selection. The combination of these two elements is the basis for our strategy and allows us to create a fund which is highly adaptive, diversified, liquid and risk controlled with low correlation to both the equity market** and the Fund s peer universe^ as illustrated below. Fund* Correlation to Market Index**: Fund* Correlation to Peer Index^: Note: Analysis based on daily data from 3 December 2007 to 30 December 20 Adaptive A feature of the TOPS process is its adaptive nature as a result of our diversified contributor base, we are not beholden to any one style of investing or source of alpha. We ask selected industry practitioners for their best ideas and we do this across a wide range of trading and investment approaches. This diversity results in an output which is highly adaptive to market conditions and able to exploit the time varying drivers of returns. An illustration of this is the rate of portfolio renewal. The chart below plots the weight overlap between the portfolio at various dates. An overlap of 00% would mean that no trading occurred and the portfolio remained identical; an overlap of 0% would mean all positions were liquidated and replaced with a different set of positions. The portfolio has been refreshed at the rate of about 50% per month lately (in calmer periods it is lower) meaning that the contributors, in interaction with our optimisation techniques, have been dynamic in adjusting positions. This characteristic proves highly effective at lowering the correlation of the strategy to traditional benchmarks or risk factors. In short, our activity is a major hedge in rapidly oscillating markets. Portfolio Overlap Diversified & Liquid Another important feature of TOPS is its breadth of the contributor base. This is mirrored in the Fund which is highly diversified, holding 2,209 positions on average during December. A further consequence of this breadth is the liquidity of the portfolio. The liquidity profile is tightly controlled in the optimisation process, ensuring that the strategy retains its flexibility and nimble nature: on average during December, over 99% of investments were able to be liquidated in a single day (calculation based on trading a third of the 30 day average volume). Please refer to the Market Capitalisation Analysis section later in this newsletter for a breakdown of the Fund s exposure by market capitalisation as at the end of December 20. share classes other than EUR C (acc) may receive but is for information purposes to illustrate the performance of the (the "Fund") and should be interpreted *-- Share Class A Acc. Euro (inception date: 28 December 2007) ** MSCI AC Daily TR Net Europe Local Index ^-- HFRX Equity Market Neutral Index Source: Morgan Stanley Capital International Inc. ( MSCI ), Hedge Fund Research Inc. ( HFR ), Société Générale Securities Services Luxembourg

3 FUND COMMENTARY Risk Controlled Over the last few years, a core component of our research has been to enhance risk management on two fronts. First, we have made significant improvements to better portfolio construction, to help portfolios withstand macroeconomic shocks as effectively as possible. This can be achieved by focusing risk on exposures that we desire, while mitigating those on which we have no view. The real proof of the value of this refinement will come in the form of reduced drawdowns over time. One way to illustrate this for our Market Neutral TOPS strategy is to look at the percentage of total risk which is focussed on idiosyncratic stock ideas versus common factors such as sectors/countries/styles. Over the past year, 68% of the risk on average in the MLIS portfolio has been targeted on stock specific factors. MLIS Predicted Risk The second area on which we have worked is understanding the interaction between the current environment and our expected returns. Not all periods are equally fertile for risk taking and we believe that taking risk off the table is just as important as putting it on. This is a difficult task to achieve in practise and one that is informed by the development of our Alpha Regime Indicators ('ARI') in 2008/9. The chart below illustrates how we have utilised the elevated levels of the ARI (4 or 5) as a sign of market distress to reduce risk and realign the portfolio. Business Update - Research Our quantitative research efforts on TOPS can be broadly split into three main streams of work: Contributor/Behavioural Research: This includes understanding the drivers of contributor behaviour, analysing biases and investigating sources and predictors of investment skill. In essence, we want to understand what factors make a contributor successful in the TOPS system and how best we can capture their skill in our funds. Alpha & Portfolio Construction Research: This includes understanding the interaction between contributor ideas and other drivers of stock returns, modelling our trading footprint in the market, optimising the portfolio and controlling risk. In other words, taking the insights we develop into contributors, stock returns, risk and trading costs and combining these to produce optimal portfolios. Risk and Environment Research: This includes analysis of the interaction between market regimes and the performance of individual, or groups of, contributors and identifying periods which are challenging for them. At any point in time we will typically be working on a range of projects across these areas. Last year, our focus was on improving portfolio construction and risk control. This year, building on this strengthened platform, we increased our focus on enhancing our TOPS alpha forecasts with additional information we can gather from items such as recent returns, traded volumes, volatility, earnings releases etc. Taking these other sources of information into account has significantly improved our ability to time entry/exit points as well as to size positions appropriately. We expect this non-tops information to continue to be an area of future development going forward. In addition to alpha and portfolio construction, work to further integrate trading directly into the investment process in live time continues. We have co-located the research and trading teams, working jointly on projects across impact cost modelling and trade scheduling. The outcome of this project will be a fully dynamic process, which responds to live changes in market liquidity and structure. Of note, one of our senior researchers has co-authored a paper in the Journal of Banking and Finance, looking at the information contained in the trades of institutional investors. Please let us know if you would like a copy. Current Outlook Irrespective of the equity market environment, we continue to invest heavily in each area of our business. Strong, sustainable approaches to investment management require constant innovation and refinement and this year has been no exception. We encourage investors to visit our offices around the world and to meet the TOPS team. share classes other than EUR C (acc) may receive but is for information purposes to illustrate the performance of the (the "Fund") and should be interpreted Source: Morgan Stanley Capital International Inc. ( MSCI ), Hedge Fund Research Inc. ( HFR ), Société Générale Securities Services Luxembourg

4 HISTORICAL MONTHLY RETURNS (%) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD (0.7) 0.5 (2.53) (.74) (.04) 0.20 (0.28) (0.4) 0.63 (0.63) (0.8) (0.50) (0.39) (.77) (3.58) (.04) (7.4) (0.75) (4.98) Based on unaudited month-end valuations. MARKET INDICATORS' PAST PERFORMANCE (%) Source: Bloomberg EONIA 2 HFRX Equity Market Neutral Index (.6) (5.56) (YTD) 0.88 (2.98) AVAILABLE SHARE CLASSES Retail Classes ISIN BBG SEDOL NAV EUR Share C (Acc) LU MLISMWC LX B57H9Q GBP Share C (Acc) LU MLISMAC LX B57H9S USD Share C (Acc) LU MLISMW3 LX B3LRNM3 not invested EUR Share C (Inc) LU n/a B4N3S0 not invested GBP Share C (Inc) LU MLISCGB LX B4N3S ACCOUNT EXPOSURE (%) Long 5.40 Short (07.73) Gross Net 7.67 share classes other than EUR C (acc) may receive but is for information purposes to illustrate the performance of the (the "Fund") and should be interpreted 2 The Euro OverNight Index Average, overnight rate computed as a weighted average of all overnight unsecured lending transactions in the interbank market, initiated within the euro area by the contributing panel banks.

5 GEOGRAPHIC ANALYSIS (%) MARKET CAPITALISATION ANALYSIS (%) Short Long Short Long SECTOR ANALYSIS (%) FUND CHARACTERISTICS Base Currency EUR Inception Date 23 November 2007 Redemption/Subscription Frequency Daily Redemption/Subscription Notice Period 2 banking days Management Fee Class C Shares 2.25% p.a. Performance Fee Class C Shares 20% above High Water Mark Fund's Assets Under Management EUR 97,92,78 Minimum Investment /$/,000 FUND MANAGEMENT Investment Manager Sponsor Auditor Custodian Administrator Marshall Wace LLP Merrill Lynch International Price Waterhouse Coopers S.à r.l Société Générale Bank and Trust Société Générale Securities Services Luxembourg FUND CONTACTS Short Long Birgit Sammer Bank of America Merrill Lynch +44 (0) birgit.sammer@baml.com Anthony Marber Marshall Wace LLP +44 (0) a.marber@mwam.com Federica Cucè Marshall Wace LLP +44 (0) f.cuce@mwam.com Greg Saffer Marshall Wace LLP +44 (0) g.saffer@mwam.com share classes other than EUR C (acc) may receive but is for information purposes to illustrate the performance of the (the "Fund") and should be interpreted 2 Positions with no specific region category. 3 Options, warrants, rights and financial instruments for which market capitalisation profile is not available or not known are included in "Other" 4 Positions with no specific sector category.

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