Innovative solutions to add alpha & manage risk

Client Education Summit 2012 Multi-asset: Innovative solutions to add alpha & manage risk Multi Asset Management October 10, 2012

Agenda The case for multi-asset An "all-weather" approach Flexibility is key Different perspectives call for individual solutions Implementation choices Varying degrees of influence and customization Client Education Summit 2012 1

The case for multi-asset An "all-weather" approach

Multi-asset solutions: Growth & opportunity The time is right Ongoing volatility in the financial markets has drawn attention to multiasset solutions Classic balanced funds are increasingly being replaced with absolute return, multi-asset strategies Growth projections for multi-asset strategies are strong What to look for in a manager Consistent excess return Research platform to enable idea generation for creation of alpha across a broad spectrum of asset classes Risk management Market-based risk measurement based on implied rather than historical volatility Intraday monitoring of positions and risk Look for a manager with unique advantages in the multi-asset space Client Education Summit 2012 3

Investors are moving to lower volatility assets AuM of mutual funds Net sales of mutual funds 10,000 9,000 8,000 7,000-3,9% Down 3.9% 140 120 100 Down -25.4% 25.4% Up 65.8% EUR trn 6,000 5,000 4,000 3,000 2,000 1,000 29.9% Up 29.9% Up 37.8% 37.8% 16.8% Up 16.8% EUR trn 80 60 40 20 0 Equity Multi- Asset Fixed Income 2006 2011 Money Market 0 Equity Multi-Asset 2009 2010 As of quarter 3, 2011 Source: EFAMA Client Education Summit 2012 4

Multi-asset strategies address a range of needs Strategy type Approach Target Risk management Absolute return oriented Flexible solutions investing in a variety of asset classes Specific risk or return targets may be specified e.g., LIBOR + x basis points with x% standard deviation Integrated in Tactical Asset Allocation (TAA) Benchmark oriented Traditional balanced Outperformance of the customized benchmark Optional risk management via hedging or overlay strategies Client Education Summit 2012 5

Flexibility is key Different perspectives call for individual solutions

SAA, TAA & DAA: Multiple ways to add value SAA (Strategic Asset Allocation) TAA (Tactical Asset Allocation) DAA (Dynamic Asset Allocation) Objective Determine the long-term Determine over- and Adjust exposure to risky risk/return profile (absolute underweights to capitalize assets based on market return concept) or the long- on market opportunities conditions term asset allocation (benchmark concept) Orientation Beta-driven Alpha-driven (active asset class over- and underweights plus security selection) Risk reduction (which translates into alpha) Benefit A disciplined approach that Adds alpha-generating Helps curb portfolio volatility draws from portfolio potential optimization techniques No assurance can be made that portfolio management objectives will be achieved. Client Education Summit 2012 7

SAA: Provides a foundation for long-term diversification Strategic allocation is driven by portfolio optimization techniques Exp. yield Exp. Vola. VaR (5 days 99.9%) Sugg. Risk- Cash Equities Equities Equities Equities Commo- Risk free Gov t Corporates High Gov t Corporates Gov t Gov t budget Europe USA Japan EM dities AAA EUR EUR yield USA USA UK Emerging mkt Exp. return 0.76% 5.82% 5.97% 4.76% 6.30% 3.94% 2.24% 2.41% 3.63% 6.36% 2.00% 4.10% 2.45% 3.60% Exp. volatility 1.10% 17.69% 19.53% 22.81% 26.33% 21.61% 3.84% 3.55% 4.68% 12.46% 10.52% 9.62% 9.48% 11.55% 3.0% 3.0% 1.3% 1.4% 5.3% 1.4% 0.6% 2.5% 73.2% 11.9% 5.0% 3.6% 3.9% 1.7% 2.4% 8.7% 3.7% 1.8% 40.4% 35.3% 5.0% 5.1% 4.1% 6.3% 2.8% 5.0% 23.8% 5.2% 1.2% 1.8% 31.6% 17.5% 5.0% 14.1% 4.7% 9.4% 4.1% 8.2% 38.1% 6.2% 3.5% 1.5% 22.9% 5.0% 22.9% 5.2% 12.6% 5.5% 11.7% 47.1% 17.9% 3.7% 13.2% 5.0% 13.2% Asset class data input Characteristics of efficient portfolios (only a sample shown) Set of "efficient " portfolios derived from optimization Allocations based on optimization results Expected return 7% 6% 5% 4% 3% 2% 1% 0% 0% 5% 10% 15% 20% 25% 30% Expected volatility As of March 2010, 5-year investment horizon assumed Source: ; Investment and Pension Solution. For illustrative purposes only. Not indicative of any investment or investment strategy. Results shown are hypothetical. Hypothetical performance results have many inherent limitations, some of which are described below. No representation is being made that any account will or is likely to achieve profits or losses similar to those shown. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently achieved by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or adhere to a particular trading program in spite of trading losses are material pints which can also adversely affect actual trading results. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results and all of which can adversely affect actual trading results. Client Education Summit 2012 8

TAA: Capitalizes on excess return opportunities The ability to react quickly and efficiently to changing market conditions is the key to additional returns from TAA Objective: Excess return Aim to generate additional return by a combination of long-term fundamental views with short-term market timing Method: Analytical research Analysts assess the relative attractiveness of asset classes Result: Tactical positions are established A structured and disciplined risk budgeting process allows tactical opportunities to be exploited within the boundaries of client s risk budget No assurance can be made that portfolio management objectives will be achieved. Client Education Summit 2012 9

In-depth proprietary research Macro Objective Alpha specialists establish long-term and short-term views Approach Direct interface with policy makers and central banks Evaluation of fundamental drivers such as Long-term views Growth Inflation Monetary and fiscal policy Current account Political environment Short-term views Flows Risk appetite Market positioning Client Education Summit 2012 10

TAA: Global research drives alpha-generating ideas Multiple alpha sources are researched Strategic assessment of long-term, fundamental drivers Tactical, short-term assessment of price within longer-term trend (Risk signaling scale is +4 to -4) Benefits Views are available to all investment professionals across the global platform Real-time transmission promotes timely implementation in portfolios Source:, for illustrative purposes only. The material does not constitute investment advice and should not be relied upon as a basis for any investment decision. Client Education Summit 2012 11

Alpha signals for TAA Integration of signals for final decision We use our global platform of internal investment specialists to generate alpha signals for our TAA approach Generation of well-founded recommendations based on a signal scale between -4 and 4 Signal universe TAA Global Equities Emerging Markets Bonds High Yield Inflation-linked Bonds Global Gov. Bonds Investment-Grade Credit Commodities Covered Bonds Source:, for illustrative purposes only. The material does not constitute investment advice and should not be relied upon as a basis for any investment decision. Client Education Summit 2012 12

Translation of signals into TAA Modeling for each multi-asset strategy Optimization of all relevant alpha signals Flexibility Caters to all risk and return requirements State-of-the-art infrastructure complements our fundamental research platform Source:, For illustrative purposes only. The material does not constitute investment advice and should not be relied upon as a basis for any investment decision. Backtested performance is NOT an indicator of future actual results. The results reflect performance of a strategy not [historically] offered to investors and do NOT represent returns that any investor actually attained. Backtested results are calculated by the retroactive application of a model constructed on the basis of historical data and based on assumptions integral to the model which may or may not be testable and are subject to losses. Backtested performance is developed with the benefit of hindsight and has inherent limitations. Specifically, backtested results do not reflect actual trading or the effect of material economic and market factors on the decisionmaking process. Since trades have not actually been executed, results may have under or over-compensated for the impact, if any, of certain market factors, such as lack of liquidity, and may not reflect the impact that certain economic or market factors may have had on the decision-making process. Further, backtesting allows the security selection methodology to be adjusted until past returns are maximized. Actual performance may differ significantly from backtested performance. Backtested results are adjusted to reflect the reinvestment of dividends and other income and, except where otherwise indicated, are presented gross-of-fees and do not include the effect of backtested transaction costs, management fees, performance fees or expenses, if applicable. Client Education Summit 2012 13

TAA reflects flexible and active decision-making Tactical asset allocation over time (illustrative example) 20.0% 7000 18.0% 16.0% 14.0% 6000 5000 12.0% 4000 10.0% 8.0% 3000 6.0% 4.0% 2.0% 2000 1000 0.0% Feb 02 May 02 Aug 02 Nov 02 Feb 03 May 03 Aug 03 Nov 03 Feb 04 May 04 Aug 04 Nov 04 Feb 05 May 05 Aug 05 Nov 05 Feb 06 May 06 Aug 06 Nov 06 Feb 07 May 07 Aug 07 Nov 07 Feb 08 May 08 Aug 08 Nov 08 Feb 09 May 09 Aug 09 Nov 09 Feb 10 May 10 Aug 10 Nov 10 Feb 11 May 11 Aug 11 Nov 11 Feb 12 May 12 Aug 12 0 Equities Alternatives EURO STOXX 50 - NET RETURN * As of September 28, 2012 Source:, own calculations. For illustrative purposes only. Please see notes regarding backtested disclosure from preceding slide. * Net of management fees. Client Education Summit 2012 14

DAA: Adds value through risk management Dynamically manages risk, offering upside participation with downside protection Centralized Risk management is centralized at the portfolio level Real-time Provides real-time, market-based measure of risk and risk budget Customizable Tailored the requirements of each investor No assurance can be made that portfolio management objectives will be achieved. Client Education Summit 2012 15

Implementation choices Varying degrees of influence and customization

Multi-strategy allocation concepts: Diversification is key Asset classes Strategies Beta Complexity Equities Fixed income Others High Low Sub asset classes: Sub asset classes: Sub asset classes: Long only Regions Sectors High grade Emerging Market Debt High yield Commodities REITs Currencies Money market Hedged Long short Volatility Market neutral Low High Multiple ways to access risk premia and create an asymmetric risk profile Client Education Summit 2012 17

Construction and implementation: A variety of choices Investment universe Fixed income Equities Commodities Alternatives: Private equity, real estate, infrastructure Instruments Equities Bonds, certificates Funds/ ETFs Derivatives Wrappers Commingled funds: offshore or UCITs compliant funds, closed-end funds Managed accounts Listed companies Make or buy Experience and resources Efficiency Client Education Summit 2012 18

Contacts Deutsche Asset Management Investmentgesellschaft mbh Mainzer Landstrasse 178-190 60327 Frankfurt am Main www.dbadvisors.com Tel. +49 (69) 71 706-3185 Fax +49 (69) 71 706 @db.com Client Education Summit 2012 19

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