6 Why Aviva Investors to exploit index anomalies? Absolute return product exploiting a transparent, easily understood opportunity Strategy managed by an experienced and stable team Short term opportunity offers even more attractive risk adjusted return.
Quant investing requires a highly skilled, experienced and stable team Ned Kelly Index Fund Manager (13, 10) Jerome NunanClient Portfolio Manager Richard Field Executive Director of Global Investment Solutions Gary SaidlerClient Portfolio Manager Dr. Iyad Farah Director of Quant Solutions (15 yrs industry, 10yrs Aviva) Russell Harris Index Fund Manager (26, 26) Brad Beardsell Index Fund Manager (7, 3) Richard SaldanhaQuant Fund Manager (5, 3) Ed Wiltshire Quant Fund Manager (16, 10) Amelia SavoryQuant Fund Manager (3, 3) Ruy Alves Quant Fund Manager (17, 14) Michael Cole Quant Fund Manager (13, 13) Working together for a number of years at Aviva Investors 8 Experience data as at 31 December 2010
9 Index enhancement of UK portfolio prior to launch of Index Opportunities Fund Performance of a sub portfolio targeting a return of 0.25% p.a. This is the outperformance of an UK FTSE All Share index tracking sub portfolio, with NAV of over £5bn. The primary objective of the portfolio is to replicate the FTSE All Share. The outperformance enhancement is achieved using similar arbitrage techniques to those used in Aviva Investors Index Opportunities Fund Information provided gross of fees Source: Aviva Investors. Data as at 31 December 2009
10 Key features of Aviva Investors Index Opportunities Fund
12 Strong growth of index and ETF strategies US: Index fund and ETF assets as a share of all long-term mutual fund and ETF assets (1993 through July 2009) 18 % 16 14 12 10 8 6 4 2 0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 Index Funds ETFs Source: Investment Company Institute, Greenwich Associates, Empirical Research Partners Analysis and Estimate.
13 Impact on liquidity and price Announcement Date – 09/12/09 Effective Date – 21/12/09 FTSE 100 Review, December 2009Addition - Aggreko Deletion – Rentokil Source: Bloomberg as at 31 December 2009.
14 An absolute return strategy Source: RBS as at 28 February 2010
15 Passive Active and passive Active Passive Active and passive Passive Close out Monitoring Implementation Filter Portfolio construction Idea generation Groundwork: index rules and stock price movement Exclusions: Stock specific catalysts, insufficient liquidity Market neutral: beta, sector, currency, region Trading: Putting on positions Adjustment: Volume, volatility, P&L Trading: Closing out positions Investment process Input Combining multiple skills to generate returns
16 Risk management is central to the process Portfolio construction Fund managers manage risk by: Exclusion of non-liquidity factors Focus on short term beta and market neutral positioning Balance across sectors and regions Managing overall leverage and risk in line with confidence levels Unwind when liquidity premium is exhausted Performance monitoring Managers vary risk as shown below Unwind Normal Low confidence in mis-pricing High confidence in mis-pricing Minimum 0% position Maximum + 5% position
Additions:Stocks with market capitalisation higher than existing index members
Deletions: Stocks whose capitalisation has dropped below companies not in the index.
33 Indices and rebalancing Index Review / Rebalance Example
Announcement date:Occurs on a regular, predetermined (for each global index) date when index providers announce which stocks will be added to the index and which stocks will be deleted. Index managers have a number of days to align with new index positions and weightings
Effective date: The date when stocks are officially in or out of the index and can officially be traded
34 Underlying strategy Action: go long additions and short deletions Action: go short additions and long deletions Source: Bloomberg as at 31 December 2009
35 The opportunity is available across the world Source: HSBC as at 28 February 2010
Typical risk analysis Rexel (Bloomberg ticker: RXL FP): added to FTSE Europe, September 2010 Execution:
Bought RXL FP on 31 August 2010, sold futures as hedge
Continuous monitoring of fundamental news flow and trading volumes during the trade lifetime
Close out position and hedge on 13 September 2010
Source: Aviva Investors, 22 October 2010 36
Hedging beta risk Strategy success depends on effective hedging
Initial objective is to create market neutral baskets within the same country or currency – hedging longs (inclusions) with appropriate shorts (exclusions).
If there are insufficient stocks to balance the portfolio, we hedge the mismatch with an appropriate future or ETF (dependent on region, country, currency or sector)
Beta is monitored using our desktop risk package to ensure the portfolio has beta as close to zero as possible – both at the implementation of the trade, and for its duration.
We monitor the “beta curve” of each stock and basket continuously – looking at beta horizons of 30 days out to two years.
38 Portfolio Leverage / net exposure Risk / return equation Long portfolio 2.5% Alpha (ungeared) Portfolio return Gross exposure up to 200% Portfolio Beta Alpha 5% 0% 5% = + 5% Geared Alpha Short portfolio 2.5% Alpha (ungeared) Annual volatility (2.5%-7.5% range) 5% Portfolio risk Net exposure 0% Beta Alpha Portfolio 0% Beta returns 5% 0% 5% = + Annual volatility 0% Information ratio = 1 The target risk-return equation
39 MSCI World rebalance – May 2010 Source: Bloomberg and Aviva Investors as at 24 May 2010
41 Iyad Farah, Director of quant solutions Joined Investment Industry in 1996 Main responsibilities Overall responsibility for active quant process and management of Active Quant funds. Experience and qualifications Iyad joined Aviva Investors in 2000. Iyad was previously a senior quantitative analyst at Union Bancaire Privee and prior to that, he was a quantitative analyst at NPI for three years. He was a senior research associate at the University of Wales before beginning his investment career in 1996. Iyad holds a BSc in Aeronautical Engineering from Technion in Israel, an MSc in Aeronautical Engineering from the University of Manchester and a PhD in Applied Mathematics from the University of Wales, Aberystwyth. Iyad is a member of the Institute of Investment Management and Research (IIMR) and holds the UKSIP Investment Management Certificate. Iyad Farah – Director of Quant Solutions
42 Ned Kelly, Fund manager Joined the investment industry in 1998 Main responsibilities Index funds and futures execution Experience and qualifications Ned joined Aviva Investors in July 2001. Previously, he worked for Legal & General Investment Management as an index fund analyst. Prior to L&G, he was with Barclays Global Investors as a client accountant. Ned holds a BA (Hons) in European Business Systems from London Guildhall University and the UKSIP Investment Management Certificate. Ned Kelly – Fund Manager
43 Jerome Nunan – Client Portfolio Manager Jerome Nunan Client Portfolio Manager for Index Opportunities Fund. Jerome joined the financial services industry in 1998 Main responsibilities To provide a primary link between investment and distribution teams through communication of investment messages, to support business development and product management in all areas related to Index Opportunities Fund and Securities Lending. Experience and qualifications Jerome joined Aviva Investors in August 2009. Before joining Aviva Investors, Jerome spent 8 years at Deutsche Bank and 10 years in the British Army with the Royal Tank Regiment. Jerome holds a BA (Hons) in Modern Languages from the University of East Anglia and a MBA from Cranfield University, School of Management.
44 Gary Saidler – Client Portfolio Manager Gary Saidler, Client Portfolio Manager Gary joined the investment industry in 2003. Main responsibilities To provide a primary link between investment and distribution teams through communication of investment messages, to support business development and product management related to Aviva Investors Asset Allocation and Index Opportunities strategies. Experience and qualifications Gary joined Aviva Investors in May 2007. Gary graduated from the University of Glasgow with a BSc (Honours) in Statistics. Prior to Aviva Investors he worked in the investment consultancy industry. Gary is a CFA charterholder and has completed the UKSIP Investment Management Certificate (IMC).
46 Multi-factor quant models Multi-factor quant models Multi-factor quant models Multi-factor quant models Global income funds Global income funds Global income funds Fundamentally weighted funds Fundamentally weighted funds Index opps fund 130/30 global funds Minimum variance Trend following High Quality Directors Dealing Developing our Quant and Index proposition The future for Quant Solutions Quant research to lead us into new products 2006 2009 2010 2002 …building momentum… INC Long-short + long only FWI 130/30 Trend Following? Multi-factor quant models Research on call overwriting Ind opps + Index Capability Research on Fundamental Indexation ! High Quality? Minimum Variance Index Capabilities Directors’ Dealing? Depth of research Index team know-how on index rebalancing strategies New research ! Regional models and long-short expertise ! Future HF long-short Products designed for client needs
47 Important information For further information on our services, or to discuss how we can help please contact: Jerome Nunan Client Portfolio Manager Aviva Investors Global Services Limited No, 1 Poultry London, EC2R 8EJ tel. +44 (0) 20 7809 8031 mail: firstname.lastname@example.org
Important information (1) Except where stated as otherwise, the source of all information is Aviva Investors Global Services Limited (Aviva Investors) as at 31 March 2011. Any opinions expressed are based on the internal forecasts of Aviva Investors and they should not be relied upon as indicating any guarantee of return from an investment managed by Aviva Investors. No part of this document is intended to constitute advice or recommendations of any nature. Performance figures sourced from Lipper Hindsight and illustrated on a bid to bid, gross income reinvested basis in the currency shown. Other information sourced from Aviva Investors. The value of an investment in the fund can go down as well as up and can fluctuate in response to changes in exchange rates. Past performance is not a guide to the future. The distribution and offering of shares may be restricted by law in certain jurisdictions. This document should not be taken as a recommendation or offer by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation. For Germany: Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV are available free of charge from Aviva Investors Global Services Limited, Zweigniederlassung Deutschland - An der Hauptwache 7, 60313, Frankfurt am Main, Deutschland, or from Aviva Investors Luxembourg, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708. For Austria: The "RaiffeisenZentralbankÖsterreich AG", Am Stadtpark 9, 1030 Vienna, has been appointed by the Company as the paying agent within the meaning of § 34 InvFG. Accordingly, the redemption of shares can be made via the "RaiffeisenZentralbankÖsterreich AG", Am Stadtpark 9, 1030 Vienna. The prospectus, the articles of association, the last annual report and the semi-annual report, once published, are available at the office of the "RaiffeisenZentralbankÖsterreich AG", Am Stadtpark 9, 1030 Vienna or from Aviva Investors Luxembourg, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708. For Spain: Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV which are approved by and registered with CSSF in Luxembourg and CNMV in Spain are available free of charge from Aviva Investors Global Services Ltd, Sucursal en España, Calle Velázquez 47, 2 dcha, 28001 Madrid, España. NIF: W0069758D. Inscritos en la CNMV con el número 33, or from Aviva Investors Luxembourg, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708.
Important information (2) For Switzerland: Fortis Foreign Fund Services AG, Rennweg 57, 8023 Zurich was authorised by the Federal Banking Commission as Swiss representative of the Fund and acts also as paying agent. Copies of the Full and Simplified Prospectus together with the Report and Accounts and articles of the SICAV are available free of charge from the head office of the Swiss representative or from Aviva Investors Luxembourg, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708. For Italy: Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV are available free of charge from Aviva Investors Global Services Limited, Corso Matteotti, 10, 20121 Milano, Italia or from Aviva Investors Luxembourg, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708. For Luxembourg; Norway: Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV are available free of charge from Aviva Investors Luxembourg, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708. For UK, France: Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV are available free of charge from Aviva Investors Global Services Ltd, No. 1 Poultry, London EC2R 8EJ or from Aviva Investors Luxembourg, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708. On 1 April 2008 the SICAV changed its name from Aviva Morley to Aviva Investors. Please read the current Prospectus for full details of the current fund range before investing. Aviva Investors Global Services Ltd, registered in England No. 1151805. Registered Office: No. 1 Poultry, London EC2R 8EJ. Authorised and regulated in the UK by the Financial Services Authority and a member of the Investment Management Association. Contact us at Aviva Investors Global Services Ltd, No. 1 Poultry, London EC2R 8EJ 11/SC0103