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  • 1. Aviva Investors Index Opportunities Fund
    April 2011
  • 2. 2
    Intended audience
    This document is for investment professionals and/or qualified investors only. The content is not approved for use with retail investors or pension scheme members
  • 3. 3
    We are proud to be a part of Aviva plc
    Long-termsavings
    General insurance
    World’s sixth-largest insurance group *
    Assetmanagement
    54,000 employees
    50 m customers worldwide
    • Aviva’s “Third Pillar”
    • 4. Over £259 billion under management
    • 5. Top 20 global asset manager**
    • 6. Operations in 22 locations in 16 countries
    • 7. c1,400 employees worldwide
    Source: Aviva Investors, * Based on gross worldwide premiums for the year ended 31 December 2009, all other data as at 31 December 2010.**Pensions and Investments – top money manager 31 December 2009
  • 8. 4
    We offer our clients expertise across all asset classes
    • Dedicated to building focused investment solutions for clients using all major asset classes
    • 9. Innovative new products to meet client needs
    • 10. Strong focus on corporate governance as a founding signatory to the UN Principles for Responsible Investment
    Source: Aviva Investors, all data as at 31 December 2010.
  • 11. Aviva Investors Index Opportunities Fund
  • 12. 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.
  • 13. A fund created from experience
  • 14. 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
  • 15. 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
  • 16. 10
    Key features of Aviva Investors Index Opportunities Fund
  • 17. The opportunity and our process
  • 18. 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.
  • 19. 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.
  • 20. 14
    An absolute return strategy
    Source: RBS as at 28 February 2010
  • 21. 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
  • 22. 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
  • 23. 17
    Performance since inception
  • 24. Appendices
  • 25. MSCI Rebalance – November 2010
  • 26. Lanxess share price 01 Sep 2010 to 15 Dec 2010
    Source: Bloomberg
  • 27. Lanxess intraday performance – 30 Nov 2010
    Source: Bloomberg
  • 28. Lanxess trading volumes at close - 30 Nov 2010
    Source: Bloomberg
  • 29. Bekaert intraday performance – 30 Nov 2010
    Source: Bloomberg
  • 30. Bekaert trading volumes at close - 30 Nov 2010
    Source: Bloomberg
  • 31. Amadeus intraday performance – 30 Nov 2010
    Source: Bloomberg
  • 32. Industrivarden intraday performance – 30 Nov 2010
    Source: Bloomberg
  • 33. Stoxx 600 addition – January 2011
  • 34. Brenntag share price 01 Oct 2010 to 24 Jan 2011
    Source: Bloomberg
  • 35. Eurostoxx performance 01 Oct 2010 to 24 Jan 2011
    Source: Bloomberg
  • 36. Supporting information
  • 37. Index (beta)
    Quant (alpha)
    Index £4.7bn
    £6.1bn
    £10.2bn
    £1.6bn
    FWI £1.4bn
    Index +
    Outperformance range 0.25% to 1.5%
    Assets under management
    31
    Source: Aviva Investors as at 31 December 2010.
  • 38. 32
    Global opportunities
    • Additions:Stocks with market capitalisation higher than existing index members
    • 39. 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
    • 40. 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
  • 41. 35
    The opportunity is available across the world
    Source: HSBC as at 28 February 2010
  • 42. 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
    • 43. Continuous monitoring of fundamental news flow and trading volumes during the trade lifetime
    • 44. Close out position and hedge on 13 September 2010
    Source: Aviva Investors, 22 October 2010
    36
  • 45. 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).
    • 46. 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)
    • 47. 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.
    • 48. We monitor the “beta curve” of each stock and basket continuously – looking at beta horizons of 30 days out to two years.
    37
  • 49. 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
  • 50. 39
    MSCI World rebalance – May 2010
    Source: Bloomberg and Aviva Investors as at 24 May 2010
  • 51. Biographies
  • 52. 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
  • 53. 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
  • 54. 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.
  • 55. 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).
  • 56. Other quant capabilities
  • 57. 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
  • 58. 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: jerome.nunan@avivainvestors.com
  • 59. 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.
  • 60. 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
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