Annual Report 2010 Investeringsforeningen Jyske Invest International

Transcription

1 Annual Report 2010 Investeringsforeningen Jyske Invest International

2 Supervisory Board Professor, DSc (Econ) Svend Hylleberg, Chairman Henrik Braüner Bent Knudsen Steen Konradsen Management Jyske Invest Fund Management A/S Vestergade 8-16 DK-8600 Silkeborg Tel Fax CVR No Municipality of registry Silkeborg, Denmark Day-to-day management Hans Jørgen Larsen, Managing Director Bjarne Staael, Head of Division, Investment, IT and Processes Finn Beck, Head of Department, Administration and Accounting Flemming Larsen, Head of Deparment, Equities Kristian Flyvholm, Head of Department, Bonds and Allocation Audit BDO Statsautoriseret revisionsaktieselskab Papirfabrikken 34, 1. sal. DK-8600 Silkeborg Beierholm Statsautoriseret Revisionspartnerselskab Voergaardvej 2 DK-9200 Aalborg Custodian bank Jyske Bank A/S Vestergade 8-16 DK-8600 Silkeborg Please note that Jyske Invest Favourite Equities is only marketed in Switzerland under its principal name Jyske Invest Aggressive Strategy.

3 Contents Contents... 3 Management's review The year in review... 5 Performance and investment... 6 Activities of the Umbrella Fund Comments on individual funds Statement by Management on the Annual Report Independent Auditors' Report Jyske Invest Danish Bonds Jyske Invest Swedish Bonds Jyske Invest British Bonds Jyske Invest Dollar Bonds Jyske Invest European Bonds Jyske Invest Favourite Bonds Jyske Invest Emerging Market Bonds Jyske Invest Emerging Market Bonds (EUR) Jyske Invest Emerging Local Market Bonds Jyske Invest High Yield Corporate Bonds Jyske Invest High Grade Corporate Bonds Jyske Invest Danish Equities Jyske Invest Swedish Equities Jyske Invest German Equities Jyske Invest Japanese Equities Jyske Invest US Equities Jyske Invest Chinese Equities Jyske Invest Indian Equities Jyske Invest Turkish Equities Jyske Invest Global Equities Investeringsforeningen Jyske Invest International Annual Report

4 Jyske Invest Emerging Market Equities Jyske Invest European Equities Jyske Invest Far Eastern Equities Jyske Invest Latin American Equities Jyske Invest Eastern European Equities Jyske Invest Global Real Estate Equities Jyske Invest Income Strategy Jyske Invest Stable Strategy Jyske Invest Balanced Strategy Jyske Invest Balanced Strategy (NOK) Jyske Invest Balanced Strategy (GBP) Jyske Invest Dynamic Strategy Jyske Invest Growth Strategy Jyske Invest Aggressive Strategy Joint notes Accounting Policies Auditors remuneration Financial calendar List of abbreviations Investeringsforeningen Jyske Invest International Annual Report

5 Management's review 2010 The year in review In 2010 the most significant events for Investeringsforeningen Jyske Invest International were: Bond funds generated an average return of 11% Equity funds generated an average return of 17.8% Emerging markets generally outperformed the other markets within both bonds and equities Assets under management grew by 19% during the year and total DKK 25,530m Adoption of Principles for Responsible Investment (PRI) Management's review is divided into three parts: Performance and investment Activities of the Umbrella Fund Comments on individual funds All abbreviations of financial terms are explained in the overview on page 205. Investeringsforeningen Jyske Invest International Annual Report

6 Performance and investment Performance of Jyske Invest International Bond funds 2010 was a good year for Jyske Invest International's bond funds which generated an average return of 11% across our funds. Our high-yielding bond funds were at the top with a return of 16.88% in Jyske Invest Emerging Local Market Bonds and 10.90% in Jyske Invest Emerging Market Bonds (EUR). Jyske Invest High Yield Corporate Bonds returned 12.66%. Among the more traditional bond funds, Jyske Invest Favourite Bonds was at the top generating a return of 7.69% for the year. Jyske Invest British Bonds generated a return of 7.18% while Jyske Invest Swedish Bonds merely returned 0.71%. Three of the eleven bond funds outperformed their benchmarks less expenses. Jyske Invest Favourite Bonds outperformed its benchmark the most at 2.40 percentage points for 2010, and the fund has outperformed its benchmark by 6.45% since it was launched in At the other end, Jyske Invest Emerging Local Market Bonds underperformed its benchmark by 4.31 percentage points. Performance of bond funds Emerging Local Market Bonds High Yield Corporate Bonds Emerging Market Bonds (EUR) Emerging Market Bonds Favourite Bonds British Bonds European Bonds Dollar Bonds Danish Bonds High Grade Corporate Bonds * Swedish Bonds * has not existed for the full year Equity funds 2010 was a good year for the equity funds of Jyske Invest International with positive performance in all funds. On average, the equity funds generated a return of 17.8% in in denomination currency terms and weighted by assets at the beginning of the year. Equity investors were favoured by rising equity prices and appreciation of a number of currencies. Investeringsforeningen Jyske Invest International Annual Report

7 The highest returns for 2010 were generated by Jyske Invest Danish Equities at 25.80% followed by Jyske Invest Turkish Equities at 25.25% and Jyske Invest Global Real Estate Equities at 25.10%. Funds with focus on the emerging markets top the performance list again and continue the trend from 2009 and the past decade. The lowest returns for 2010 were generated by Jyske Invest Japanese Equities at 0.71%, Jyske Invest Chinese Equities at 6.54% and Jyske Invest Latin American Equities at 13.14%. Nine out of the 16 equity funds outperformed their benchmarks in Jyske Invest Aggressive Strategy (+4.07 percentage points) and Jyske Invest European Equities (+3.89 percentage points) outperformed their benchmarks the most. The return in Jyske Invest Latin American Equities was 4.19 percentage points below that of its benchmark. Danish Equities Turkish Equities Global Real Estate Equities Eastern European Equities Swedish Equities Indian Equities German Equities Emerging Market Equities Far Eastern Equities US Equities European Equities Global Equities Latin American Equities Chinese Equities Japanese Equities Performance of equity funds Strategy funds Our strategy funds had an excellent year with returns ranging from 5.03% in Jyske Invest Income Strategy to 24.57% in Jyske Invest Aggressive Strategy. There was solid contribution from our overweightings in the equity market and high-yielding bonds which outperformed developed-market bonds in Six of the seven strategy funds outperformed their benchmarks. Jyske Invest Growth Strategy outperformed its benchmark by no less than 7.64 percentage points thanks to the overweightings in equities and high-yielding bonds. The only strategy fund not to beat its benchmark was Jyske Invest Income Strategy which underperformed its benchmark by 0.77 percentage point. Please note that past performance is not a reliable indicator of future results. Please see the specific market comments for each fund. Investeringsforeningen Jyske Invest International Annual Report

8 Performance of strategy funds Aggressive Strategy (Favourite Equities) Growth Strategy Dynamic Strategy Balanced Strategy Balanced Strategy (NOK) Stable Strategy Income Strategy Balanced Strategy (GBP) * * has not existed for the full year Market developments in 2010 Performance in the global equity and bond markets was positive in In the bond markets, emerging-market bonds and corporate bonds generated returns in the level 9.4% to 17% while developed-market bonds generated returns up to 7.2% (Jyske Invest British Bonds). Global equity prices rose by 10% on average in 2010 in local currency terms. The appreciation of a number of currencies against the euro meant that euro-based investors received a return of approx. 21%. The returns were highest on emerging-market equities which rose by 27% on average while Europe generated the lowest return at a rise of 11%. Market developments were in 2010 characterised by five significant themes: Uncertainty about the direction of the global economy Expansionary economic policy in the US with zero interest-rate policy and bond purchases German optimism and debt crisis in Europe Low indebtedness and high growth rates in the emerging markets The equity market in fine form Theme 1: Uncertainty about the direction of the global economy Uncertainty about the direction of the global economy is - as always - rooted in the US. Overall, US growth came to about 3% in 2010 after a fall of 2.6% in At the beginning of 2011, further growth is supported by continued tax cuts, high public spending and very high business confidence in the US. Unemployment of almost 10% and a battered housing market characterised by many foreclosures and low turnover pull in the other direction. Households save reasonably and Investeringsforeningen Jyske Invest International Annual Report

9 try to pay off their debt, but this prevents the economy from expanding further. Theme 2: Expansionary economic policy in the US with zero interest-rate policy and bond purchases This has resulted in the authorities pursuing an extremely expansionary economic policy. In the US, the budget deficit is almost 9% of GDP and public debt is 90% of GDP for twelve months. Heavy public debt and continued budget deficits will lead to a significant rise in the issue of US government bonds in 2011 and in future, but the Americans have come up with a solution to this. The American central bank, the Fed, announced in 2010 a second round of its enormous bond purchases which mean that the Fed will buy DKK 3,400bn worth of US government bonds by the end of the first half of At the end of 2011, the Fed will have more than DKK 13,000bn invested in US government and mortgage bonds. Consequently, the Fed owns approx. 1/5 of all US government bonds and buys most of the government bonds issued in Throughout 2010, the Fed has held interest rates historically low close to zero percent. The Fed must ensure maximum employment and stable prices. Given high unemployment of almost ten percent and risk of falling prices, the Chairman of the Fed, Ben Bernanke, assesses that via bond purchases the Fed should seek to reduce the interest-rate level further. He has in part succeeded since long-term interest rates fell by about 0.5% in the US in The last half of the year was, however, characterised by budding optimism and rising interest-rate levels. Theme 3: German optimism and debt crisis in Europe In Europe, 2010 was a landmark year with focus on the major economic tension in the euro zone. Germany showed strength in 2010 after a decade of wage restraint and rising productivity. Both business confidence and employment in Germany are at the highest they have been for two decades. The Scandinavian economies are generally also in fine form, particularly Sweden saw high growth rates in These positive signals are diametrically opposite the situation in the peripheral euro-zone countries since several of these countries are currently being bailed out by the EU, the ECB and the IMF. The debt crisis erupted in May 2010 when investors refused to buy Greek bonds and the yield on a 10-year Greek government bond rose to more than 20%. Greece received a gigantic bailout of more than DKK 800bn and austerity measures were demanded. In November 2010, Ireland was the next country to feel the markets' dissatisfaction with the policy pursued and again the EU and the IMF helped out. The risk of a domino effect, which is still threatening to spread to countries like Portugal, Spain and perhaps Italy, led to the establishment of the European Financial Stability Facility (EFSF) which can issue bonds guaranteed by all the EU member countries. A European Financial Stability Mechanism (EFSM) has also been established to enable financial support for struggling EU member countries. The IMF has also promised to contribute half of what the EU offers in support. Europe is in a crucial phase since the member countries will increasingly have to put their hand in their pocket to secure the common European project and the single currency. Theme 4: Low indebtedness and high growth rates in the emerging markets The situation is far more positive in many emerging-market countries. The public debt to GDP ratio in the emerging markets is only 1/3 of the same key figure for the G7 countries. The G7 countries struggle with the effects of an aging population, heavy budget deficits and rising public debt whereas the emerging markets are characterised by low indebtedness, budgets under control and a relatively young population Investeringsforeningen Jyske Invest International Annual Report

10 in many countries. In brief, the economic world map is turned upside down after the financial crisis with healthy economies in the emerging markets and major challenges in the economies. Investors spotted this and therefore moved investments to both emerging-market equities and bonds, which resulted in excellent performance in 2010 since the local currencies appreciated and both equity and bond prices rose. affected equity prices in China, which rose less than in other markets in the Far East. For a more specific review of market developments, please see the comments under the individual funds. Theme 5: The equity market in fine form The upturn in the global equity markets, which began in the spring of 2009, continued throughout The price rises picked up in earnest in the last three months of the year when investors appetite for equities rose thanks to the combination of economic growth and the prospect of a long period with low short-term interest rates and further initiatives to boost growth in the US, for instance. Corporate earnings met the high expectations of analysts in 2010, which supported a budding optimism. Among sectors, the growth sensitive areas like consumer discretionary, industrials and materials were globally the best-performing sectors at rises of 30%-35% - in euro terms. The continued positive economic trend in the emerging markets had a positive effect on earnings and equity prices in these markets. In terms of geography, it was again in 2010 the emerging markets in the Far East, Latin America, Eastern Europe and Africa, which recorded the best performance. Developments in China gain increasing importance in the global economy. In 2010, high economic activity and rising inflation led to concern about overheating of the economy at the central government in Beijing. As a result of this, the Chinese repeatedly introduced tightening measures against banks and the real-estate market in The tightening measures Investeringsforeningen Jyske Invest International Annual Report

11 Application of profits All the funds are cumulative. Accordingly, no dividend will be paid for Market outlook 2011 Economic outlook In most economies, growth stabilised at a rather reasonably level in 2010, and we expect 2011 to continue in a similar trend. The upturn in the US, Germany and Japan continues at a moderate pace while growth in the emerging markets appears strong. The US economy is expanding at a fair pace driven by historically low short-term interest rates, purchase of government bonds and new growth packages with resultant high public expenditure and less tax revenue. In Europe, growth prospects are lower but German growth is expected to continue in 2011 and to drive smaller countries, Denmark included. The fear of a new debt crisis prompted some European governments to raise taxes and cut public spending to reduce the budget deficits. Overall, this means that growth in Europe will also be moderate in In the emerging markets, growth is expected to continue at high speed in Countries like China and India can look forward to another year of growth ranging from 8% to 10%, and overall we expect growth in the emerging markets in the level of 6%-7% in Bonds The interest-rate level in many markets is still lower than we have seen for a number of years. We expect the interest-rate levels to be normalised as the economies see renewed growth and renewed focus on inflation in This means that the return on developed-market bonds may be at the low end of the range 0%-3% in We are still more bullish about the prospects for emerging-market bonds which we expect to generate returns in the level of 3%-5% in We expect the best return to come from an investment in corporate bonds which may generate returns of up to 6%-9% in 2011 if companies and thus the equity market perform well and growth stabilises at a higher level. We base our expectation on an assessment of the macro economy as it stands at the beginning of 2011 and on input from our investment process MOVE which signals interest-rate rises and continued good conditions for high-yielding bonds. There are, however, a number of significant risks related to the global economy, which we discuss under Market risks. Equities The prospect that the economic upturn will continue in 2011 is expected to form a good basis for companies in Throughout the crisis, companies have been quick to adjust their organisation, lower costs and reduce debt. Companies are therefore generally in fine form and have good opportunities of taking advantage of economic growth to increase earnings. Overall, we expect global earnings to increase by 10%-15% in 2011 with minor regional differences. In our view, global equities currently have a fair valuation. In terms of the price-earnings ratio (P/E ratio), global equities trade at a P/E ratio of about 13, which is in line with the long-term average. Due to the low interest rates, equities appear attractive in comparison with bond investment. This is also true in a situation with growing concern over inflation, since historically equities have been a natural hedge against inflation. Following a long period of debt reduction at companies, we expect that in 2011 focus on new investment and acquisitions will increase. Capacity utilisation is on the rise, and this will naturally prompt companies to initiate new investment or make acquisitions of other Investeringsforeningen Jyske Invest International Annual Report

12 companies. Activity within this area was on the rise in 2010, and we expect this trend to continue. The possibilities of financing acquisitions at attractive interest-rate levels have improved markedly, and the high corporate earnings make acquisitions more interesting. For the same reason, we expect that in 2011 companies will extensively buy back own shares and increase dividend payments. The emerging markets are still the star performer of the world economy with high growth, strong public balances and consumers in top form. Growth of consumption in these countries will again in 2011 create attractive investment opportunities - both in companies domiciled in these countries but also in European, American and Japanese companies which take advantage of the growth opportunities. Overall, emergingmarket equities are still trading at a small discount to developed-market equities despite better earnings prospects and a higher return on equity. We expect that in 2011, the emerging markets will outperform the developed markets - although not to the same extent as we have seen over the past ten years. Due to the prospect of a period with continued low interest rates and thereby cheap liquidity, we expect a higher global inflow into equities from investors in We expect a positive performance of the equity funds in 2011 although not quite to the same level as the rises in We base the expectation on the current valuation, the prospect of rising earnings and the current strong position of companies. Please note that past performance is not a reliable indicator of future results. Please see the specific market comments for each fund. Market risks Global growth may in 2011 be adversely affected by imbalances and wide differences between the economies. The imbalance between the emerging markets and the developed markets is growing sharply. Adverse developments may be enhanced by the continued high indebtedness in a number of economies, which means that there is still a need to reduce debt and consequently growth is hampered. In the US, the growth picture was enhanced throughout 2010, but the attempt to create growth is still to the detriment of growing debt and deficit problems. There are currently no specific plans for how the authorities will reduce these problems over time, and this may create budding distrust in both US government bonds and the US dollar. Moreover, the economy is still affected by the fact that unemployment is high and the housing market has stagnated. Deterioration may make consumers increase savings further and thereby dampen private consumption. Some European countries have introduced large savings packages and new taxes to tighten the public budgets. This will inevitably hurt demand and increase the risk of a setback in the economies since the debt-ridden countries are struggling with recession, political unrest, a battered housing market and a banking system in dire need of public help. In the emerging markets, high growth may create concern for overheating, asset bubbles and inflation. Some of these countries began to tighten their economic policies in 2010, and we can expect further initiatives in This is particularly true for China since here growth is high and inflation rising. The housing market in China is also a potential risk following large price increases for a number of years. Tighter monetary policies in these countries may lead to stronger currencies but also to slower export growth, higher export prices and more moderate domestic growth. Investeringsforeningen Jyske Invest International Annual Report

13 The FX markets may again in 2011 greatly influence performance in a number of portfolios. We have over the past years seen considerable fluctuations between the currencies, and we will probably again in the coming year see tension in the FX market. Given the current situation, many countries prefer a weak currency to ensure exports and the competitive power. The Americans and the Chinese play a central role in this game since the two struggle to agree on the need for an appreciation of the Chinese currency and the speed at which this should happen. Disagreement about exchange rates may lead to interventions in the FX markets, different forms of capital control and increased protectionism, which will harm global trade and investors' confidence. Especially the performance of the US dollar, the yen and a number of emerging-market currencies against the Danish krone may influence performance both positively and negatively in The euro may play an important role. The differences between the countries in Europe are growing due to wide differences in the competitive power and public balances. Speculations about the future of the euro and whether countries may be forced to abandon the single currency may have an adverse effect on the markets in Escalation of the debt crisis constitutes the largest risk for Europe. For a number of countries, it will be important to be able to finance the deficits in 2011 via bond issues. Insufficient possibility of obtaining funding at reasonable terms may create uncertainty in the markets. This may result in rising government-bond yields and consequently falling bond prices. The greatest challenges are in Greece, Portugal and Ireland and to a lower degree also in Spain and Italy. The high activity in the emerging markets creates great demand for commodities, oil, food, etc. Rising prices on these resources may have an adverse effect on growth and may create a higher inflationary pressure in some countries. Rising commodity prices may have an adverse effect on companies since they are dependent on certain commodities for their production. Central banks and politicians face a great challenge in 2011 of initiating a normalisation of historically low interest rates and expansionary fiscal policies so they match the economic upturn. Rising interest rates may accelerate the challenges for indebted consumers, companies and countries, and rising interest rates will lead to falling bond prices and generally low returns in the bond market. Overall, we find that the risks in the global markets are higher than usual, and therefore we expect higher than usual price fluctuations in the markets. This should be taken into account when looking at our expected performance since this rests on our assumptions of the markets at the beginning of Risk factors The investment management company s management of the Umbrella Fund s assets is associated with business risks as well as financial risks, which may affect the individual funds. Decisions to invest are based on our own and our advisers' outlook and are thus associated with a degree of uncertainty. The investment management company has set up internal control procedures for the current and regular follow-up on the consequences of any given decision. This is in part undertaken via a management information system, which tracks the performance of individual funds and their benchmarks and follows up on approved budgets for operating cost and selected key ratios to quickly identify possible changes and to form the basis of new decisions. Investeringsforeningen Jyske Invest International Annual Report

14 Business risks Business risks are managed with focus on security and precision. The investment management company is subject to the supervision of the Danish Financial Supervisory Authority and to statutory audit by the auditors elected at the Annual General Meeting. Control and business procedures have been prepared to reduce the risk of day-to-day operational errors, including procedures and disaster recovery plans for IT operations. The investment management company is a knowledge-based undertaking. Employees work in teams to ensure the constant availability of the required competencies. Each team shares knowledge continuously about its own tasks. Management pays particular attention to ensuring that the necessary resources in the form of competencies and tools are available at all times. Financial risks Financial risks are managed pursuant to statutory requirements on risk diversification, including the access to using derivative financial instruments and in accordance with individual fund investment policies. New risk classification With the introduction of the Key Investor Document, standardised information requirements are introduced as of 1 July 2011 to make it easier for investors to get an overall view of the investment. A risk meter, for instance, contributes to illustrating the risk. The risk meter has been calculated on standard deviations based on five-year data. The funds are divided into seven risk classes based on the standard deviations. Risk classes 1-4 typically comprise funds with developed-market bonds. Risk class 5 typically comprises funds with high-yielding bonds. Developed-market equities will typically be placed in risk class 6. Equity funds with focus on the emerging markets top the list in risk class 7. Jyske Invest International has already now decided to calculate the new risk ratio and the expected division into risk classes. Standard deviation and the risk class of the individual funds appear from the risk meter. As an investor of Jyske Invest International's funds, it is important to be aware of the risks in the investment markets. All types of investment involve a certain degree of risk. Investment will involve risks from developments in the financial markets. Moreover, there are risks related to the type of security that is invested in. These risks include political, economic, credit, FX, market, liquidity, regulatory, judicial and owner/creditor risks. All types of investment in the emerging markets are associated with particular risks that are not seen in the developed markets. This also applies when the offeror of an instrument has its place of business or operates the majority of its business in such a country. To maintain the funds' risk profile, guidelines have been determined for all funds. Investeringsforeningen Jyske Invest International Annual Report

15 MOVE and VAMOS the investment processes at Jyske Invest International During periods of wide price fluctuations in the financial markets, it is important to have a disciplined investment process and to focus on risk management. At Jyske Invest International, the selection of shares is based on the investment process VAMOS which combines quantitative screening with qualitative selection of individual shares. In 2009, Jyske Invest introduced the investment process MOVE which is used for the bond funds. Both MOVE and VAMOS combine value and momentum in the markets and derive signals from this. The signals are subsequently evaluated by our experienced portfolio managers based on our team approach. But where VAMOS presents specific recommendations at share level, the purpose of MOVE is to determine the general investment strategy, and then the individual bonds are picked by our portfolio managers within the general investment strategy. Further information about our investment processes is available at The specific financial risks of the individual funds appear from the fund comments. Risk management is also a central part of our investment process. Generally, the Supervisory Board and the management of Jyske Invest International ensure that the set criteria are met. The management follows developments and can adjust the risk involved in our investment processes so that action is taken if the investment process proves less successful. As part of the daily portfolio management, we aim to separate return and risk so that other things being equal, we know the factors that we are exposed to and can specify where our returns come from. Risk management is thus an integral part of the daily working methods at Jyske Invest International and a considerable focus area for the management. Investeringsforeningen Jyske Invest International Annual Report

16 Activities of the Umbrella Fund Basic values In many ways, Jyske Invest International is a different investment partner, and we strike out on our own to optimise fund performance. Our vision is to supply investment solutions which are perceived by our investors and business partners as uncomplicated, active, customised and innovative. Discipline and teamwork are key words in our search for attractive investment opportunities. Active management makes a difference We believe that the combination of active management of our portfolios, strong teamwork among our portfolio managers and a disciplined selection process lead to the best results for our investors. We have developed our own unique investment processes which rest on quantitative screening of interesting investment opportunities and subsequent qualitative analysis, with portfolio managers drawing on their knowledge and expertise to select the best investment opportunities. A broad range of opportunities We offer more than 30 investment opportunities - from funds with developed-market equities and bonds to strategy funds and emerging-market funds. Our broad range of funds covers: Developed-market equities Emerging-market equities Real-estate equities Developed-market bonds Emerging-market bonds Corporate bonds Strategy funds Material events in 2010 The year was characterised by the following material events at Jyske Invest International and in our immediate surrounding world: 1. UCITS IV Directive 2. New funds 3. Dissolution of four funds 4. Number of investors 5. Awards 1: UCITS IV Directive A new act on investment associations will take effect on 1 July It implements the new EU Directive (UCITS). The aim is to increase competition within Europe and make for bigger units so that economies of scale are achieved as do US funds. The act comprises a number of new initiatives: Investment associations may in future select a management company abroad. This means that foreign investment associations may select a Danish management company in future, and Danish associations may select a foreign company as their manager. In other words, the management companies will have a European passport. It will be easier for foreign investment associations to market their funds in all the EU member states. There will be master-feeder funds featuring a socalled feeder fund which can easily invest all its assets in another fund, the master fund. That will facilitate management and make for much larger funds. Much better investor information will be available in the new Key investor document (KID). It will be a standard two-page document about each. It holds data about portfolios, performance and a 7-rung classification of the risk involved in individual funds as well as costs. This will be introduced throughout the EU. Investeringsforeningen Jyske Invest International Annual Report

17 The process of implementing this new document has been initiated and will continue in : New funds In January, the Umbrella Fund launched Jyske Invest High Grade Corporate Bonds which invests in corporate bonds denominated in the euro. It invests primarily in corporate bonds with a high rating by international rating agencies corresponding to a rating from Aaa to Baa3 with Moody s or AAA to BBB- with Standard & Poor s. This means that the fund primarily invests in bonds issued by companies whose debt-servicing ability has been assessed to be high. In November, the Umbrella Fund launched the fund Jyske Invest Balanced Strategy (GBP). GBP, the currency mentioned in the fund name, is the fund's base currency. The fund invests at least 75% of its assets in GBP or hedged to GBP. It invests in a global equity and bond portfolio. The portfolio includes 30%-60% equities. 3: Dissolution of four funds In December, the funds Jyske Invest Telecom Equities, Jyske Invest IT Equities, Jyske Invest Biotech/HealthCare Equities and Jyske Invest British Equities were dissolved. The reason behind the dissolution is mainly that investors no longer demand this type of funds. In recent years, the number of investors in the funds - and thereby also the assets under management - has fallen considerably. Therefore the volume of the funds cannot be maintained at an acceptable level which may justify the costs of continued operation. Also, it is assessed that the funds no longer offer the extraordinary return potential that may be an argument in favour of keeping funds of this size. 4: Number of investors The number of investors was 8,569 at year-end. 5: Awards The Umbrella Fund has received four Lipper Fund Awards. The recognition was achieved by the fund Jyske Invest Income Strategy which won four awards. The awards were given for all of Europe and the countries Germany, Holland and Switzerland. All the prizes are awarded for the fund's performance over a five-year period. Capital Assets under management by Jyske Invest International increased by 28%, from DKK 5,685m to DKK 7,275m at year-end. The rise consisted of net issue of DKK 680m, net profit for the year of DKK 805m and a foreign currency translation adjustment of the assets under management at the beginning of the year of DKK 105m. There was net issue of DKK 680m against net redemption of DKK 130m in Sales have been satisfactory throughout the accounting period. Net issue mainly took place in the high-yielding bond funds and the strategy funds, but there was also net issue in developed-market bond funds and equity funds. Breakdown by asset type 27.53% 35.73% 10.41% 26.33% Developedmarket bonds High-yielding bonds Equities Strategy funds Material events subsequent to the closing of the accounts No events have occurred subsequent to the closing of the accounts which would materially affect the Umbrella Fund s financial position. Investeringsforeningen Jyske Invest International Annual Report

18 Supervisory Board and Management Board At the Umbrella Fund's Annual General Meeting on 23 March 2010, member of the Supervisory Board Steen Konradsen was up for re-election according to the Umbrella Fund's Articles of Association. The Supervisory Board had proposed re-election and Steen Konradsen was unanimously reelected as member of the Umbrella Fund's Supervisory Board after which the Supervisory Board additionally consists of Svend Hylleberg, Henrik Braüner and Bent Knudsen. Following the Annual General Meeting, the Supervisory Board elected Svend Hylleberg as its own chairman. Five board meetings were held in Facts about the Supervisory Board Member Svend Hylleberg Bent Knudsen Henrik Braüner Steen Konradsen Age Appointment Reappointment Up for re-election by (alternate member) 2002 (full member) The Umbrella Fund's Supervisory Board consists of the same persons who constitute the supervisory boards of the other investment associations under management by the Umbrella Fund's investment management company Jyske Invest Fund Management A/S. The aggregate remuneration is paid in Jyske Invest Fund Management A/S and distributed among the investment associations under management according to their share of the total assets under management. The Supervisory Board s remuneration for the work performed in the Umbrella Fund in 2010 amounted to DKK 206k. The share of the individual fund appears from the notes of the accounts for the individual funds. The Supervisory Board's remuneration for the work performed in the Umbrella Fund in 2011 is expected to be in the range of DKK 109k. The change is partly due to the fact that the distribution of assets under management among the investment associations under management with the same supervisory board members can be changed from year to year whereby the individual investment association's share of the total supervisory board remuneration is affected and partly due to the fact that in 2010 one-off remuneration was paid to the Supervisory Board due to extraordinary work performed over the past year. The Management Board s remuneration for the work performed in the Umbrella Fund in 2010 amounted to DKK 409k. The members of the Umbrella Fund's Supervisory Board and the Management Board of the Umbrella Fund's management company, Jyske Invest Fund Management A/S, hold the following management positions with other Danish limited liability companies: Svend Hylleberg, Chairman No other management positions Henrik Braüner Member of the Board of Directors of: Metafix A/S, Chairman Vibocold Bruno Simonsen A/S, Chairman Investeringsforeningen Jyske Invest International Annual Report

19 Henrik Braüner A/S Bent Knudsen Member of the Board of Directors of: BRK Silkeborg A/S and associated undertakings, Chairman Steen Konradsen Member of the Board of Directors of: Arepa A/S, Chairman Arepa Firenew A/S Dansk Fundamental Metrologi A/S, Chairman Silkeborg Udviklings Selskab A/S Trivselsgruppen A/S Management Board Jyske Invest Fund Management A/S Hans Jørgen Larsen No other management positions Material agreements The Umbrella Fund has entered into the following material agreements: A management agreement has been entered with the investment management company Jyske Invest Fund Management A/S about handling all tasks relating to investment and administration of the Umbrella Fund. A custodian bank agreement has been entered with Jyske Bank A/S which assumes the role of supervisor, cf. the Danish Investment Associations and Special-Purpose Associations as well as other Collective Investment Schemes etc. Act [Lov om investeringsforeninger og specialforeninger samt andre kollektive investeringsordninger m.v.]. The Umbrella Fund s securities and cash and cash equivalents are held in custody with Jyske Bank A/S. An agreement has been entered with Jyske Bank A/S about advice on the overall portfolio strategy of all funds, except Jyske Invest Global Real Estate Equities. Under the agreement, Jyske Bank A/S offers recommendation on portfolio mix, and the investment management company then considers whether to implement the recommendation. An agreement has been entered with Jyske Bank A/S about the terms for securities trading and foreign exchange transactions. An agreement has been entered with Jyske Bank A/S about the payment of up-front fees in connection with issues in the Umbrella Fund and current sales commission on the Umbrella Fund's assets under management. Furthermore, an agreement has been entered with Jyske Bank A/S about support for handling the Umbrella Fund's marketing and about product development. Finally, an agreement has been entered with Jyske Bank A/S Jyske Markets about the quotation of fund unit prices internally at Jyske Bank A/S and vis-à-vis external partners. An agreement has been entered with UBS Global Asset Management (UK) Ltd. about advice on the overall portfolio mix in the fund Jyske Invest Global Real Estate Equities. Under the agreement, UBS provides advisory services about the portfolio mix and transactions that are considered profitable as part of the portfolio management. The individual proposals are presented to the investment management company which then considers whether to Investeringsforeningen Jyske Invest International Annual Report

20 implement the recommendation. Fund Governance The Umbrella Fund observes the Fund Governance recommendations laid down by the Federation of Danish Investment Associations. Fund Governance means good business practice and corresponds to corporate governance for companies, i.e. a general presentation of the rules and values which apply to the overall management of the Umbrella Fund, including structures and processes. The Umbrella Fund's full Fund Governance policy is available at the Umbrella Fund's website, Corporate social responsibility The Umbrella Fund considers it to be its primary responsibility to optimise the return for our investors. The Umbrella Fund exercises corporate social responsibility in connection with investments, meaning that environmental, social and corporate governance (ESG) issues are included in the investment decisions. At the end of 2010, the Umbrella Fund adopted the Principles for Responsible Investment (PRI). PRI is a global initiative to promote responsible investment, created by some of the world's largest investors together with the UN. Therefore it is often referred to as UN PRI. PRI is based on a general statement and six principles (see separate section on the statement and the six principles). Jyske Invest International has an agreement with an external adviser from which twice a year the Umbrella Fund receives a screening report of companies which seriously violate international standards and conventions. To assess the reports from the external adviser, determine the contribution to the cooperation with other investors about active ownership and to act in situations posing ESG challenges, Jyske Invest International has established an internal forum which can quickly be convened to decide how the Umbrella Fund stands on the individual investment or the individual company. Jyske Invest International works together with other investors to take active ownership in relation to companies with ESG challenges. Exercising responsibility when selecting investments is a very complicated matter. Opinions differ widely when it comes to responsible investment. Investors, authorities, media, politicians and interest groups have varying definitions of the concept. Jyske Invest International does not wish to be bound by certain conventions or international charters. The Umbrella Fund wishes to be at liberty to assess which companies and industries the Umbrella Fund will invest in on the basis of corporate social responsibility. Statement and six principles of responsible investment at PRI As institutional investors, we have a duty to act in the best long-term interest of our beneficiaries. In this fiduciary role, we believe that environmental, social and corporate governance (ESG) issues can affect the performance of investment portfolios (to varying degrees across companies, sectors, regions, asset classes and through time). We also recognise that applying these principles may better align investors with broader objectives of society. Therefore, where consistent with our fiduciary responsibilities, we commit to the following: 1. We will incorporate environmental, social and corporate governance (ESG*) issues into investment analysis and decisionmaking processes. 2. We will be active owners and incorporate ESG issues into our ownership policies and practices. Investeringsforeningen Jyske Invest International Annual Report

21 3. We will seek appropriate disclosure on ESG issues by the entities in which we invest. 4. We will promote acceptance and implementation of the Principles within the investment industry. 5. We will work together to enhance our effectiveness in implementing the Principles. 6. We will each report on our activities and progress towards implementing the Principles. * ESG is an acronym for Environmental, Social and Governance. The acronym ESG is typically used in both Danish and English. Information about the Umbrella Fund's work with corporate social responsibility is available at the Umbrella Fund's website, Certification The Umbrella Fund was GIPS certified in GIPS is an acronym for Global Investment Performance Standards. The certification means that the reporting of performance and ratios follows international reporting standards. The standards are designed to ensure investors across the world comparable and correct information about their investment. The certificator makes an annual check whether the Umbrella Fund observes the GIPS standards. Investeringsforeningen Jyske Invest International Annual Report

22 Comments on individual funds Jyske Invest Danish Bonds Performance in 2010 The fund generated a return of 3.83% for the period against a benchmark return of 6.13%. The benchmark return is positive considering the uncertainties which, in our opinion, existed at the beginning of the year. The relative return was 2.30 percentage points below the benchmark return. The fund was outperformed by its benchmark due to too low duration. Two- and ten-year yields fell by 0.79 and 0.66 percentage point, respectively, against our expectations at the beginning of the year of unchanged to slightly rising yields. The year began with practically unchanged to slightly falling yields until May when uncertainty increased about the sustainability of the advance in the US economy, primarily due to poor economic indicators for the housing and labour markets. In addition, the European debt crisis escalated. Yields surged in the peripheral countries while Danish ten-year yields fell to a record low of 2.18% on 31 August. Ten-year yields closed the year at 3.00%. Outlook for 2011 We expect that 2011 may be the year when the US will report positive developments with falling unemployment and economic growth above trend. Economic growth is solid and combined with the tax package there are prospects of a fall in unemployment. Europe, on the other hand, is facing significant growth challenges with strong fiscal tightening. In addition, we may see renewed turbulence about the peripheral eurozone countries. Also, we expect a moderate slowdown in China. We expect rising government bond yields in the US, the euro zone and Denmark. Short-term interest rates will presumably increase most in the euro zone and Denmark since we expect the ECB to hike its interest rates before the Fed. In addition, we expect that longterm yields will increase the most in the US due to better growth prospects. Current risks If interest rates rise, bond prices fall which will hurt overall performance. If the creditworthiness of the issuer is reduced or an issuer is unable to service its debt, it will hurt performance. General uncertainty or lack of liquidity in the market may also hurt overall performance. Specifically, the proposal for stricter capital requirements due to the Basel III or the Solvency II Directives may result in lower price loss on the holding of Danish mortgage bonds since investors are encouraged to hold government bonds under the new rules. Turbulence about the Danish fixed exchange rate policy may also result in price loss on Danish bonds, although we find this less likely. Please note Past performance is not a reliable indicator of future results. The value of and return on your investment may fall, and you may not get back the full amount invested. An initial charge is usually made when you purchase and sell units. You should be aware that changes in exchange rates may have an adverse effect on your investment if DKK is not your base currency. Investment profile Invests primarily in Danish investment-grade bonds. Risk profile Investment horizon: We suggest at least 3 years 1-3 years medium fluctuations in return 3 years plus - limited fluctuations in return Risk code: amber. Risk class: 3. The benchmark is EFFA's 1-10-year Danish bonds. ISIN code: DK Established in March The currency of denomination is the Danish krone (DKK). Investeringsforeningen Jyske Invest International Annual Report