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    Citywire berlin credit_suisse Citywire berlin credit_suisse Presentation Transcript

    • Berlin, November 16-18th, 2011 Everything you ever wanted to know about ETFs Citywire BerlinThomas MerzHead ETF Switzerland/LiechtensteinEnrico CameriniHead ETF Italy November 2011 Page 1
    • Agenda Overview of the European ETF Industry Points to Consider When Evaluating an ETF The European ETF Industry: Current Regulatory Review Credit Suisse ETFs Appendix Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 2
    • We have seen exponential growth across the ETF market ETFs are a worldwide phenomenon with more than US$ 1.24 trillion invested across the globe and a Compounded Annual Growth Rate (CAGR) of 30% over the last 11 years More than half of current assets are in US domiciled ETFs with Europe accounting for 20% of the market 1,400 1,307 CAGR Debt and money market 1,241 Dec 2000 – Q3 2011: 1,200 Commodity 30% Equity 1,034 Sep 2011 Regional AUM Market Share 1,000 796 US 68% 710US$ bn 800 Europe 21% 566 Asia 6% 600 Others 5% 412 400 310 212 142 200 74 105 0 Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Dec Q3 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 •Source: CS ETF Sales Strategy, Blackrock Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 3
    • The European ETF Industry Assets and flows of European ETFs, as of 30.09.2011 At the end of September 2011 the European ETF market recorded assets of USD 261.70bn, down 16.29% from USD 312.61bn at the end of Q2 The MSCI World Index declined 17.06% over the same period; while the Eurostoxx 50 and S&P 500 indices posted declines of 23.48% and 14.33%, respectively ETF market growth therefore remains positive, despite serious adverse headwinds Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 4
    • Projected Growth* of the ETF Market ETP AUM1,2 5-year CAGR USD trillion 4.7 Percent High case Based on current projections, total global Low case 3.7 26.7 ETF AUM could grow from approximately 2.9 USD1.5 trillion today to between USD3.1 trillion 2.3 and USD4.7 trillion over the next five years. 1.8 1.5 1.7 2.0 2.3 2.7 3.1 16.7 2010 2011F 2012F 2013F 2014F 2015F 1 Includes estimates for Americas, Europe, Asia (excluding Japan) and all other regions (eg Japan, Mideast, etc.) 2 Includes all exchange traded products (eg ETF, ETFN, ETC) and baseline steady-state growth (no shocks to system) Source: McKinsey analysis; ETF Landscape Year-end 2010; industry reports *Financial market scenarios are not a guarantee for current or future performance Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 5
    • Conversion from active to passive assets will drive growth USD mm US Europe Asia Total Total Mutual Fund AUM 12,402,900 8,400,670 3,067,323 23,870,893 Total ETF AUM 1,087,351 313,476 87,300 1,488,127 ETF as % of Mutual Fund AUM 9% 4% 3% 6% Current 10% 10% 10% 10% Potential Implied AUM Growth of ETFs given potential 152,939 526,591 219,432 898,962 share of Mutual Fund AUM Implied total ETF AUM given potential share 1,240,290 840,067 306,732 2,387,089 of Mutual Fund AUM Academics and investment advisors have increasingly been pushing for investors to shift from actively managed to passive funds. Current ratio of active:passive investments estimated by Towers Watson at 90:10, but optimally should be 30:70 Increased allocations to passively managed funds is huge opportunity for ETFsSource: IGI for US data, as of 31.05.2011, and Asia total MF data, as of Q4 2010; Lipper FERI FMI for Europe data, as of 31.03.2011, BlackRock for Asia ETF AuM data, as of 31.12.2011 Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 6
    • NNA flows for European ETFs per asset classSource: Bloomberg, Credit Suisse, data as at end of September 2011 Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 7
    • Agenda Overview of the European ETF Industry Points to Consider When Evaluating an ETF – Choosing the right ETF – Case study: Gold ETFs The European ETF Industry: Current Regulatory Review Credit Suisse ETFs Appendix Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 8
    • Choosing the Right ETF ETF performance can be compared on the basis of net asset values (NAVs) Tracking error (TE) alone often fails to provide enough relevant information for comparing ETFs (for example where swap-based products are concerned) In addition to the total expense ratio (TER), the relative performance of the ETF compared to the reference index (total return net) is also an key factor to consider Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 9
    • The ETF creation and redemption process guarantees liquidityTrading mechanism of a long ETF position: Primary and Secondary market Primary Market Secondary Market (Stock Exchange, OTC) Primary Market Investor Underlying securities Buy order: Creation ETF Units Cash or basket AuM AuM ETF market of stocks increase increase ETF Units Underlying Stock / Cash Market maker / market ETF authorised participant Futures ETF Units Options Cash or basket Sell order: of stocks AuM ETF Units AuM Redemption decrease decrease Investor Underlying securities Source: Credit Suisse Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 10
    • The liquidity of the underlying defines the liquidity of the ETF Spread of approx 34bps (ask-bid/bid) with no trading volume on exchange. Despite this a size of 2007 units is being quoted (approx CHF 250000) Reason: The underlying assets (in this case US treasuries) are liquid. It is therefore relatively easy for the market maker to hedge his position The liquidity of an ETF is based on the liquidity of its underlying assets Conclusion: Liquidity doesnt depend on trading volumes but on the hedging costs of the underlying market risk, and the number of market makers quoting a binding price for the ETF Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 11
    • ETF Indexing Methodologies Indexing Strategies Full Replication Optimized Sampling Synthetic Replication All securities within an index are A limited number of securities are Synthetic replication involves the purchased according to their considered. The number of use of derivatives (e.g. Equity- weightings securities determines the tracking Linked Swaps “ELS”) Ensures a minimal tracking error error which can be forecasted. A The manager receives (deviations) of the portfolio minimum risk optimization is benchmark performance in conducted by the use of a risk exchange of the substitute basket The full replication method may optimization tool result in many positions return from the counterparty (i.e. depending on the index and Ensures a controlled and low the ELS issuer) requires a portfolio construction expected tracking error Through the ELS, the fund is tool (deviations) of the portfolio subject to counterparty risk. eliminating economically Should the counterparty default, It is used mostly for liquid and/or unattractive investments narrow defined indices and for the investment objective may not fixed income indexes without tax It is used mostly for indices with be achieved implications illiquid investments and/or broad based equity and fixed income indices. It is also used for fixed income indices with tax implications Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 12
    • ETF Selection: Physical ReplicationThe traditional replication methodology with physical index constituents requiressophisticated portfolio management and optimisation tools for trading and risk management. – Handling of index changes – Handling of corporate actions ( e.g. stock splits) Investor – Handling of coupon and dividend reinvestments ETF Shares USD 100 – Withholding tax reclaims (double tax treaties) ETF – Management of inventory (Securities Lending, etc.) Index Performance – Optimisation of transaction costs through order pooling Basket of Equities Source: Credit Suisse, October 2011 Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 13
    • ETF Selection: Synthetic ReplicationIndexing methodology – swap replication A popular choice in Europe under UCITS, the fund invests in (i) a basket of securities which might be unrelated to the replicated benchmark and (ii) enters into a performance swap with a counterparty Under the swap, the fund receives the benchmark performance in exchange for the substitute basket performance The tracking error is “outsourced” from the investor to the swap counterparty, but counterparty risk arises (max 10% of ETF NAV, per counterparty) An efficient replication methodology, that (i) allows low tracking error for fragmented, highly costly or difficult to access markets and (ii) also allows exposure to a broader investment universe Investor ETF Shares USD 100 Pays index performance ETF Total Return Swap Investment Bank Pays equity basket performance Basket of EquitiesSource: Credit Suisse, October 2011 Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 14
    • Synthetic ETF Considerations Funded or unfunded swap? Single or multiple swap counterparty? Financial strength/ viability of swap counterparty Quality of swap collateral Transparency of the swap structure (does the investor know what they own?) Swap “reset” frequency (daily, weekly, 10% exposure limit?) Is there a securities lending program in place for the substitute basket/ swap collateral? What is the swap spread charged to the investor? Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 15
    • Advantages of ETFs Versatile: ETFs are popular among private and institutional investors both as long-term investments or to implement active trading strategies, for market making and to over- or underweight particular asset classes Targeted use of assets: The Credit Suisse ETF portfolio covers the major equity and bond indices of the worlds leading stock exchanges and economies. Thematic and regional funds such as those on emerging markets, global alternative energy and physical gold complement the range Short term portfolio adjustments: ETFs can be traded throughout the entire trading day and are ideal for short term portfolio adjustments Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 16
    • Risks Involved in Investing in ETFs In line with the benchmark index Market risk In funds where the fund currency differs from the trading currency Currency risk Tracking As a result of TER and the replication method used, an ETFs NAV may differ slightly risk from the performance of the reference index Swap-based ETFs carry a counterparty risk as a result of the swap transactions theyCounterparty risk are based on (the swap is used to replicate the index); securities lending in cash- based ETFs may also result in a counterparty risk ETFs are only actively promoted in countries where they are registered for sale Regulatory risk Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 17
    • Securities Lending and CS ETFs Securities lending constitutes a counterparty risk. The implementation differs greatly among ETF providers Credit Suisse has a long track-record in securities lending, has the ability to generate excellent lending opportunities and is among the preferred counterparties in the market. This often results in advantageous prices and enables the portfolio manager to optimize portfolio returns CS ETFs Irish domiciled fund range currently does not engage in securities lending. For CS ETFs Swiss and Luxembourg domiciled funds, Credit Suisse applies the following four step process: 1. Principle lending with Credit Suisse 2. Only collateralized securities lending 3. Overcollateralization (105-115%) 4. Daily valuation and monitoring of the collateralization Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 18
    • Benefits and Risks of Different Exchange Traded Instruments Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 19
    • Benefits and Risks of Different Exchange Traded Instruments (contd) Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 20
    • Agenda Overview of the European ETF Industry Points to Consider When Evaluating an ETF – How to choose the right ETF – Case study: Gold ETFs The European ETF Industry: Current Regulatory Review Credit Suisse ETFs Appendix Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 21
    • ETFs on Gold in Switzerland – a Comparison CS ETF II (CH) on Gold* ZKB Gold ETF JB Physical Gold FundStructure Swiss domiciled investment fund Swiss domiciled investment fund Swiss domiciled investment fundPhysical gold Yes, Credit Suisse (Zurich) Yes, ZKB / SIS Sega Intersettle Yes, Julius Baer / SIS Sega IntersettleCurrency hedge Yes, CHF & EUR tranche Yes, CHF, EUR & GBP tranche Yes, CHF, EUR & GBP TrancheAuM Approx CHF 3 bn Approx CHF 10 bn Approx CHF 6 bnExchange forphysical Yes, all bars (min CHF 200’000) Yes, only standard bars (12.5 kg) Yes, only standard bars (12.5 kg)Indicative spread 10 - 20 bps (hist. avg.) 10 - 20 bps (hist. avg.) 10 - 20 bps (hist. avg.)(stock exchange) 33 bps (USD) 40 bps (USD) 42 bps (USD)TER p.a. 41 bps (hedged EUR/CHF) 45 bps (hedged EUR/CHF) 43 bps (hedged EUR/CHF)Reference price London PM Fixing New York Fixing London PM FixingAdvantages of CS ETF on Gold Swiss domiciled investment fund (no issuer risk) and 100% backed with physical gold Competitive TER (0.33% p.a.) The CS ETF on Gold is based on the „London PM Fixing“ gold price: the most liquid and well-known market for gold Exchange for physical from CHF 200‘000* This fund is not registered for public distribution in Germany Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 22
    • Advantages of investing in Gold using ETFs compared toSwaps and Direct Investments into Physical Gold High level of security: the CS ETF on Gold is a Swiss domiciled investment fund. No issuer risk or counterparty risk exists (investing in swaps or buying physical gold on a metal account would result in a counterparty risk) The intraday liquidity of an ETF allows for timely access or exit of the market (particularly important in periods of high volatility) Tight ETF spreads on exchange and OTC enable cost efficient implementation of tactical holdings Easy to manage and generally cheaper than a direct investment in physical gold (investments into physical gold need to be physically handled, incuring costs) ETFs enable short positions to be taken CS ETF on Gold can be traded either intraday or at closing NAV. The indicative spreads are: – On exchange (intraday): 10-15 bps (for volumes up to approx CHF 1‘000‘000) – OTC (intraday and closing NAV order): 4-6 bps Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 23
    • Gold and Asset Allocation Gold is by no means a risk free investment. Gold has similar volatility to equities. Silver, platinum and palladium have even higher volatilities. However at the same time, gold has a different price cycle than traditional assets such as stocks or bonds. For instance, gold prices tend to do well during periods of falling real interest rates. They provide a certain hedge against USD weakness and inflation. Moreover, they tend to perform well during extreme events. As a result, gold and other precious metals are good diversifiers for traditional portfolios. Adding gold to otherwise diversified stock and bond portfolios can reduce volatility significantly. Precious metals and gold in particular can also help to reduce risk (and particularly tail risk) in FX portfolios. For academic research on precious metals and asset allocation please refer to: – Erb & Harvey (2005), The Tactical and Strategic Value of Commodity Futures, NBER Working Paper Series Vol. w11222 – Gorton & Rouwenhorst (2005), Facts and Fantasies about Commodity Futures, Financial Analysts Journal Vol. 62 No. 2 – Michaud, Michaud & Pulvermacher (2006), Gold as a Strategic Asset, World Gold Council – Mongars & Marchal-Dombrat (2006), Commodities: An Asset Class in their own Right?, Banque de France Financial Stability Review No. 9 Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 24
    • The Importance of the Currency HedgeHistorically and over the long term, gold had the opposite performance compared to the foreign exchangeUSD/CHF and USD/EUR. An active strategy on the currency hedge side is important for non-USD clients 520 1.5 Gold Spot in USD (indexed) 500 Return over the period: 480 Gold Spot converted into CHF (indexed) 460 Gold Spot hedged CHF (indexed) 1.4 Gold in USD: +364% 440 USD/CHF (right hand scale) Gold converted in CHF +203% 420 400 1.3 Gold hedged in CHF +312% 380 360 USD/CHF -35% 340 1.2 320 300 280 1.1 260 240 220 200 1 180 160 140 0.9 120 100 80 0.8 12/02 04/03 08/03 12/03 04/04 08/04 12/04 04/05 08/05 12/05 04/06 08/06 12/06 04/07 08/07 12/07 04/08 08/08 12/08 04/09 08/09 12/09 04/10 08/10 12/10 04/11 08/11 12/11Historical performance indications and financial market scenarios are no guarantee for current or future performance.Source: Bloomberg, periode 31.12.2002-30.09.2011 Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 25
    • Costs of Currency Hedge – the Interest Rate DifferentialHedging costs are currently very low (approx 0.2% p.a.)! 4.5% Interest Rate Difference USD-CHF (1-month Libor) 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 12/02 06/03 12/03 06/04 12/04 06/05 12/05 06/06 12/06 06/07 12/07 06/08 12/08 06/09 12/09 06/10 12/10 06/11 12/11Source: Bloomberg, Credit Suisse. Data as of 30.09.2011 Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 26
    • Agenda Overview of the European ETF Industry Points to Consider When Evaluating an ETF The European ETF Industry: Current Regulatory Review Credit Suisse ETFs Appendix Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 27
    • Regulatory Spotlight on ETFs - an Overview April Mai June July August September October12.04 FSB Bank of UK Serious 07.09 IOSCO13.04 IMF England Fraud Office 21.09 ESRB13.04 BIS FSA 22.07 ESMA 21.09 FINMA Conflicts of interest Complexity Potential dangers Product classification Opacity emanating from Transparency Securities lending Interdependence ETFs Conflicts of interest Transparency Marketing of ETFs ETF structures Financial stability requirements Transparency Independence/ Use of derivatives Liquidity Governance Collateralization Registration Systemic risks emanating requirements from ETFs and UCITS Liquidity Liquidity risks of swap providers Regulatory arbitrage Counterparty risk and securities lending Mismatched incentives Liquidity risks in trading ETFs Systemic risk Risk transparency Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 28
    • Agenda Overview of the European ETF Industry Points to Consider When Evaluating an ETF The European ETF Industry: Current Regulatory Review Credit Suisse ETFs Appendix Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 29
    • Credit Suisse ETFs: A Leading European ETF Provider 4th largest ETF provider in Europe with $17bn of AUM* A leading ETF The largest ETF provider in Switzerland* Provider One of the most experienced ETF providers in the European market: ETFs since 2001, indexing solutions since 1994 The second largest provider of physically replicated ETFs in Europe*Asset Sound foundations in the Credit Suisse Asset Management (CSAM) expertise in indexing: 17 years track record ofManagement performanceexpertise Holistic investment approach: a team of 50+ professionals, to deliver excellence to our clients via ETFs, index funds and dedicated mandates Products listed on 5 stock exchanges across Europe: SIX Swiss Exchange, Borsa Italiana, Xetra, London Stock Exchange and NYSE Euronext ParisGlobal Reach Client coverage across the globe: Switzerland, UK, Ireland, Italy, Germany and Austria, France, Spain, Nordics, Benelux, HK “Building block” approach with 58 ETFs to replicate all the main markets by geography and market capComprehensive 42 Equity, 13 Fixed Income and 3 Physically-backed Commodity ETFsProduct Range UCITS Irish & Luxembourg based funds and non-UCITS Swiss-domiciled funds CS ETFs is 100% owned by CSAMA RegulatedFiduciary Operates solely within CSAM’s fiduciary framework, minimising conflicts of interest to the greatest degree possible* Source: CS ETFs Sales Strategy, Bloomberg, 27.10.2011 Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 30
    • Credit Suisse ETFs: A Focus on Physical Replication A return to the fundamentals of ETF investment: – In today’s turbulent markets clients are demanding less complex, more transparent products to achieve their investment objectives – Physically replicating ETFs embrace the traditional, core benefits of this investment vehicle that have proved so popular with investors for nearly 20 years: simplicity, transparency, liquidity and low cost. – Efficient access to various asset classes in a safe and informed manner: physical ETFs offer benchmark exposure through a transparent, direct replication structure A commitment to quality, trust and transparency: – Credit Suisse ETFs product range comprises 46 physical and 12 synthetic funds: we are committed to producing the industry’s best physical ETFs, offering synthetic ETFs only when physical ETFs are not possible, or demonstrably less efficient than synthetic in terms of TER, trading costs or liquidity. – Where we offer synthetic ETFs, we provide the highest levels of quality and transparency including daily swap reset to minimise counterparty risk and visibility of all holdings on the website each day. Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 31
    • Our Product Suite 58 ETF products enabling our clients to use a “building block” approach to gain exposure to the primary markets by asset class, geography and market capital structure Developed Equities: - Credit Suisse ETFs cover over 90% of global equity market capitalization - Unique provider of a consistent range of MSCI Large/Small Cap by region - Some of the largest ETFs in Europe, such as the SMI with AUM of CHF3.2bn - Among the most competitive providers, in terms of total efficiency on a risk-adjusted basis Developed Equity (29) Emerging Equity (13) Fixed income (13) Commodities (3) Regional Single country Pac ex. Eurozone World Europe Australia Canada Italy Japan Switzerland* UK US Japan (EMU) Dow All cap MSCI MSCI FTSE MSCI MSCI MSCI FTSE MSCI MSCI MSCI Jones Dow Large cap MSCI MSCI Nikkei SLI SMI MSCI MSCI Nasdaq Jones S&P Mid cap MSCI SMM 500 Small cap MSCI MSCI MSCI MSCI* These funds are not registered for public distribution in Germany Source: Credit Suisse Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 32
    • Our Product Suite Emerging Equities: - 12 Dublin domiciled ETFs / 1 Luxembourg domiciled ETF - 4 Regional funds / 9 single country including the first European listed Chinese A Shares enabling investors to take part in the growing consumer market in China. Developed Equity (29) Emerging Equity (13) Fixed income (13) Commodities (3) Regional Single country Emerging EM EM EM South Mexico China Russia Brazil Chile India Korea Taiwan Market LatAM Asia EMEA Africa Capped A ShareAll cap MSCI MSCI MSCI MSCI MSCI MSCI MSCI MSCI MSCI CSI 300 MSCI MSCI MSCILarge capMid capSmall capSource: Credit Suisse Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 33
    • Our Product Suite Fixed income: - Unique provider of consistent range of EUR and USD government bond indices - Sole provider of Swiss government bond exposure Equity (42) Fixed income (13) Commodities (3) Money Markets Govt 1–3 years Govt 3–7 years Govt 7–10 years* ILB USA Fed Funds Effective Rate iBoxx iBoxx iBoxx iBoxx Europe EONIA iBoxx iBoxx iBoxx iBoxx Switzerland* SBI SBI SBI * Switzerland 7-15 Years Commodities: - Fund’s holdings of physical gold are safe-kept in Credit Suisse’s own vaults in Zurich - Unique provider of EUR- and CHF-hedged gold exposures Equity (42) Fixed income (13) Commodities (3) Single sector Physical Gold (USD / Hedged EUR / Hedged CHF)* These funds are not registered for public distribution in Germany Source: Credit Suisse Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 34
    • Total Cost Considerations and Capital Markets SupportExplicit – Headline costs to investorsImplicit – Other significant factors to consider Total Cost of Holding an ETF Explicit Costs Implicit Costs Total Expense Ratio (TER) Tracking Error Trading Costs: commission, spread Rebalancing Costs Dedicated capital markets team to help clients in reducing trading cost Securities Lending: within ETF, of the ETF (Swap Spread) Securities Lending is a revenue item (negative cost) but may add further risk Source: Credit Suisse, October 2011 Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 35
    • CS ETF PlatformsSwitzerland (since March 2001) Contractual structure Fund management => Credit Suisse Funds AGLuxembourg (since October 2002) Contractual structure (FCP) Management company => Credit Suisse Fund Management S.A.Ireland (since July 2009) Corporate structure (SICAV / VCC) Management company and investment manager Outsourcing model Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 36
    • Structure and ContractsCompany Secretary Promoter Investment Manager DistributorsCarne Group Credit Suisse AG Credit Suisse AG Credit Suisse AGLegal Advisor 4Maples & Calder Irish ManCo Credit Suisse Fund 2 Management Company Administrator (Ireland) Ltd. BNY Mellon Fund Services I n v e s t o r s (Ireland) Limited 2 3 Custodian 5 The Company BNY Mellon TrustCredit Suisse CS ETF (IE) PLC Company (Ireland)Securities 1 6 Limited(Europe) Ltd. 71 Custodian Agreement2 Administration Agreement 5 ISDA3 Management Agreement 6 Securities Lending Agreement4 Investment Management Agreement 7 Master Securities Lending Agreement Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 37
    • What Determines the Spread of an ETF? Overall two way flow in the product - Overall buyers and sellers involved in the ETF at any given point Liquidity/ Cost of hedge - Market makers have to hedge the exposure when clients buy/sell ETF from/to them Creation/ redemption charges and costs - There can be custody charges imposed by custodians of assets on behalf of issuers - Taxes and stamp duty costs imposed by regulators (e.g. 50bp stamp duty in UK) Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 38
    • Best Execution Total cost of ownership: The comprehensive method of assessment – How one overcomes liquidity constraints is one of the most critical issues raised by our investor base – Coupled with this is the question of “How to achieve best execution when trading ETFs”? Key considerations: – Many of the liquidity issues raised are a perception of what is possible, not the reality – Although ETFs trade like stocks, they are not stocks and they have their own dynamics – Underlying liquidity of the fund is the true determinant of the ETF’s liquidity Key to this is an understanding of : – The creation and redemption process – Looking at the underlying liquidity of the fund ETF “Best Execution” – Is conceptually simple, albeit different for every fund – Is possible in practice as long as one follows certain rules – Credit Suisse ETFs has a dedicated Capital Markets Team to help navigate this Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 39
    • Agenda Overview of the European ETF Industry Points to Consider When Evaluating an ETF The European ETF Industry: Current Regulatory Review Credit Suisse ETFs Appendix Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 40
    • Appendix: The Benefits of ETFs Precise access to a wide range of asset classes including difficult to enter markets Market Access Diversified exposure to a whole index - rather than a specific stock - in one trade Ideal building blocks for implementing asset allocation strategies Transparency Total transparency on fund holdings Low total expense ration (TER) Low Fees Cost effective alternative to traditional mutual funds Fully funded, open ended structures Highly Regulated Eligible for inclusion in ISAs and SIPPs ETFs experience price changes throughout the day as they are bought and sold Liquid continuously, with bid/ ask spread determined by the spread of the underlying index Liquidity is provided by market makers throughout exchange opening hours Not a derivative – no ISDA (International Swaps and Derivatives Association) documentation,Operationally Easy no margin requirements; single stock transaction Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 41
    • Credit Suisse ETFs: Implementation (Physically-Backed) The use of full replication or optimised sampling method depends on the type of benchmark, the size of the portfolio, tax issues and specific restrictions. Depending on the specific situation, Credit Suisse will apply the appropriate replication method that keeps the tracking error and the costs to a minimum, focusing on the needs of our investors. Benchmark Portfolio size Other constraints Initial parameters Benchmark characteristics: number of Analyse benchmark universe securities, regions, etc. Consideration of factors which could Analyse liquidity, tax, restrictions on impact cost and tracking error such as the Tracking benchmark universe liquidity of benchmark securities, tax error Costs implications, and other restrictions Build investment universe Possible reduction of benchmark universe and / or enlargement by non benchmark securities Define replication method Derivation of replication method Full replication method Optimised sampling method Purchase of complete set Optimisation of securities Cash based ETF, fully replicated Cash based ETF, optimised sampledSource: Credit Suisse Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 42
    • The Optimal Way for Investors to Trade CS ETFs Order Book BID OFFER Exchange Cap Mkts Group work with Sales and Client to conduct pre-tradeCS ETFs analysis and where necessary Clients Cap Mkts recommend APs Liquidity Providers Sales Inventory/Borrow or OTC Authorised Specialist ETF Broker Provide two way quotes OTC Participants or Primary Market ETFs can be traded on the secondary market by any broker recognised by the particular Exchange Primary market (creation/ redemption) trading with CS ETFs available only to Authorised Participants (APs). Authorised Participants tend to be market makers (making market on exchange and/ or over the counter) but market makers don’t need to be Authorised Participants! The Credit Suisse ETFs Capital Markets Team works with clients to provide optimal management of trading Credit Suisse ETFs can help match flows, minimise market impact, provide information on optimal execution and sources of liquidity Our sole focus is costs of trading and working with Credit Suisse ETFs clients Source: Credit Suisse, October 2011 Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 43
    • Trading ETFs:Don’t Impose a Single Stock Mindset on ETFs ETF execution is often done by traders who come from a single stock background. This means that they apply the same concepts to ETFs when they are trading. Good single stock liquidity indicators are: – Average Daily Volume (ADV) – Orderbook size – Number of orders in the orderbook These concepts are relevant to ETFs but not in the same way Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 44
    • Some ETFs May Have Tighter Spreads than the Underlying On-Exchange spread of 3bpsSource: Bloomberg Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 45
    • CS ETF (CH) on SMI* Underlying Liquidity Underlying market spread Basket Spread of 15bps* This fund is not registered for public distribution in Germany Source: Credit Suisse, October 2011 Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 46
    • Does the Average Daily Volume dictates the size you can trade?In this example we have an ADV of 31,950 shares Source: Bloomberg Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 47
    • This is not the case: 174,135 shares traded on this day, nearly 6 times theaverage shown Source: Bloomberg Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 48
    • This is not the case: 1,206,480 shares printed as an OTC trade on this day,nearly 40 times the ADV shownSource: Bloomberg Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 49
    • Credit Suisse ETFs Contacts Bloomberg: CXTF <GO>Head ETF Switzerland/LiechtensteinThomas Merz +41 44 334 18 07thomas.merz@credit-suisse.comHead ETF ItalyEnrico Camerini +39 335 1726 557enrico.camerini@credit-suisse.com Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 50
    • Important InformationThis document was produced by Credit Suisse AG and/or its affiliates (hereafter "CS") with the greatest of care and to the best of its knowledge andbelief. However, CS provides no guarantee with regard to its content and completeness and does not accept any liability for losses which might arisefrom making use of this information. The opinions expressed in this document are those of CS at the time of writing and are subject to change at any timewithout notice. If nothing is indicated to the contrary, all figures are unaudited. This document is provided for information purposes only and is for theexclusive use of the recipient. It does not constitute an offer or a recommendation to buy or sell financial instruments or banking services and does notrelease the recipient from exercising his/her own judgment. The recipient is in particular recommended to check that the information provided is in linewith his/her own circumstances with regard to any legal, regulatory, tax or other consequences, if necessary with the help of a professional advisor. Thisdocument may not be reproduced either in part or in full without the written permission of CS. It is expressly not intended for persons who, due to theirnationality or place of residence, are not permitted access to such information under local law. Neither this document nor any copy thereof may be sent,taken into or distributed in the United States or to any U. S. person (within the meaning of Regulation S under the US Securities Act of 1933, asamended). Every investment involves risk, especially with regard to fluctuations in value and return. Investments in foreign currencies involve theadditional risk that the foreign currency might lose value against the investors reference currency. Historical performance indications and financial marketscenarios are no guarantee for current or future performance. Performance indications do not consider commissions levied at subscription and/orredemption. Furthermore, no guarantee can be given that the performance of the reference index will be reached or outperformed. In connection withthis investment product, the Issuer and/or its affiliates may pay to third parties, or receive from third parties as part of their compensation or otherwise,one-time or recurring remunerations (e.g. placement or holding fees). In receiving payments by third parties the Issuers and/or its affiliates interests maybe adverse to those of the holders of this investment product and such payments can affect the investors return. You may request further informationfrom your bank/relationship manager. Potential conflicts of interest can not be excluded. This document qualifies as marketing material that has beenpublished for advertising purposes. It must not be read as independent research.THE INDEX PROVIDER MAKES NO WARRANTY AND BEARS NO LIABILITY WITH RESPECT TO THE FUNDS OR ANY INDEX ON WHICH SUCHFUNDS ARE BASED, AND MAKES NO REPRESENTATION REGARDING THE ADVISABILITY OF TRADING IN SUCH FUNDS.For prospective investors in Germany:Each purchaser of shares acknowledges that CS ETF II (CH) on Gold, CS ETF II (CH) on Gold - hedged CHF, CS ETF II (CH) on Gold - hedged EUR,CS ETF (CH) on SBI Domestic Government 1-3, CS ETF (CH) on SBI Domestic Government 3-7, CS ETF (CH) on SBI Domestic Government 7-15and CS ETF (CH) on SMI® are not and will not be registered for public distribution in Germany. This document does not constitute a sales prospectuspursuant to the German Investment Act (Investmentgesetz) or the German Securities Prospectus Act (Wertpapierprospektgesetz). Accordingly, no offerof the shares may be made to the public in Germany. This document and any other document relating to the shares, as well as information or statementscontained therein, may not be supplied to the public in Germany or used in connection with any offer for subscription of the interests to the public inGermany or any other means of public marketing. An offer of the shares exclusively to credit institutions and financial services providers as defined in theGerman Banking Act, private or public insurance companies, investment companies and their investment managers as well as pension funds and theiradministrators is not deemed to be a public distribution.Copyright © 2011 Credit Suisse Group and/or its affiliates. All rights reserved. Please see “Important Information” at the end of this material for important disclosures regarding the data and information October 2011 contained and the views and opinions expressed in this material. Page 51