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