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Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products
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Finance Pros: The Insights 1 | BNP Paribas IP: Structured Products

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1e gastpresentatie van het 2e semester.

1e gastpresentatie van het 2e semester.

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  • 1. Workshop KUL 19-02-2014 Investing in practice Searching for the winning combination
  • 2. Workshop KUL 19-02-2014 Content 1. Introduction to Asset Management 2. Asset classes 3. Key concepts 4. Fund management 5. ETFs and Index funds 6. Examples of fund & fund styles 7. Conclusion and Q&A
  • 3. Workshop KUL 19-02-2014 1. Introduction to Asset Management
  • 4. Workshop KUL 19-02-2014 | 02/20/14 | BNP Paribas Investment Partners within BNP Paribas Group BNP Paribas Retail Banking BNP Paribas Assurance BNP Paribas Wealth Management Investment Solutions BNP Paribas Securities Services Corporate and Investment Banking BNP Paribas Investment Partners BNP Paribas Real Estate 4
  • 5. Workshop KUL 19-02-2014 | 02/20/14 | Who are we? Global asset management leader The 6th largest European asset manager with EUR 479 billion(1) in assets under management and advice Strong, diverse geographic presence Competency focus and performance-driven culture with an international multicultural employee base. Around 3 200(1) staff in 40 countries in Europe, Asia and the Americas A multi specialist model A global network of investment experts -’Partners’- offering one of the broadest and deepest ranges of solutions in the industry with some 60 investment centres and boasting around 700 investment professionals Client focused organisation Around 600 client facing staff serving institutional clients and distributors in 70 countries, with five core markets in Europe (Belgium, France, Italy, Luxembourg, the Netherlands) A rigorous investment approach Fitch Ratings(2) Asset Manager rating: Highest Standards, Stable Outlook ISAE Type II Report (previously SAS-70 certification) (3) Backed by BNP Paribas Group Backed by BNP Paribas Group, one of the best rated banks in the world (A+)(4) Key features: financial stability, transparency, rigorous risk and compliance control (1) So31/12/2013urce: BNPP IP, per 30 June 2013 (2) Source: Fitch Ratings April 2013: scope for IP includes BNPP AM, FundQuest Advisory and FFTW (3) Source : Deloitte July 2012 (4) Source: Standard & Poor’s October 2012 5
  • 6. Workshop KUL 19-02-2014 | 02/20/14 | Who are we? International, multi-cultural: Around 3 200 employees(1) in 40 countries North America (5%) New York Boston Chicago Toronto Latin America (4%) Brazil Mexico Chile Argentina Colombia Uruguay (1) Source : BNPP IP as 31 December 2013 (2) EEMEA: Eastern Europe, Middle East and Africa Europe (57%) France Belgium UK Netherlands Luxembourg Germany Italy Spain Switzerland Austria Portugal Greece Nordics (4.5%) Sweden Norway Finland Denmark EEMEA(2) (3.5%) Morocco Kuwait Bahrain Turkey Russia Asia-Pacific (26%) Japan China Hong Kong Singapore Taiwan South Korea Indonesia Malaysia Brunei India Australia IP Investment Centres Distribution Centres 6
  • 7. Workshop KUL 19-02-2014 | 02/20/14 | A full circle of expertise A core satellite model capitalising on both specialist and partnership capabilities Multi-expertise investment BNP Paribas Asset Management, the largest BNPP IP Partner, encompasses the major asset classes with investment teams operating around the globe. Specialist investment partners Specialists in a particular asset class or field (mainly alternative and multi management), operating as boutiquelike structures. Local solution providers Local asset managers covering a specific geographical region and/or clientele (the majority in emerging markets). 7
  • 8. Workshop KUL 19-02-2014 Our clients: investors’ profiles 8
  • 9. Workshop KUL 19-02-2014 | 02/20/14 | Main players Production “Managing the investments” (BNPP IP) Administration “Performing back-office activities” (BPSS) Distribution “Selling products/services” (BNPP networks) Retail Research • Information gathering • Performance analysis • Recommendations Asset allocation • Investment decisions • Trading orders Marketing • Value propositions • Product • Advertising/ development • Pricing campaigns • Marketing support for clients • Weighting asset classes Portfolio management • Trade support (clearing settlement) • Accounting and administration • Performance analytics Institutional Trading Sales • Trade execution Client service • Branches • Agents • Telemarketing/ direct mail • Etc • Clients presentations • Prospects generation • Response to • Client relationships consumer inquiries management • Reporting and strategy discussions 9
  • 10. Workshop KUL 19-02-2014 Mandate/UCITS MANDATE Segregated account: Mandate or dedicated fund: contract signed between an Institution and the Asset Manager for a bespoke portfolio. –The client delegates of the assets to an external manager –The investment objectives, conditions, restrictions and legal framework are defined in the Investment Management Agreement. • An Umbrella Fund invests its assets in different types of securities according to an investment policy defined prior to the inception date. • The total assets are made up of various subfunds; each one of them is an independent fund with its own management objectives, portfolio of securities, net asset values and specific conditions in which it may function. • The shareholders can buy and sell shares from the umbrella fund every day, based on the real value of the assets which determines the value of the shares (net asset value - NAV). 10
  • 11. Workshop KUL 19-02-2014 Parvest 11
  • 12. Workshop KUL 19-02-2014 2. Asset Classes
  • 13. Workshop KUL 19-02-2014 Individual securities vs investment funds ● Individual securities – Issuer-linked / credit risk – Liquidity risk – Market risk / performance risk – Return / risk – Choice of security: buy & sell – Transaction tax – Custody fee – Minimum subscription amount – Limited access ● Investment funds – Pooled assets – Managed by specialists – Advice / action related – Transaction tax – Management fee – Custody fee – Available form small amounts – Regulated – Transparency – Easy access – Advanced risk/return profile
  • 14. Workshop KUL 19-02-2014 Can anyone buy ? ● MIFID – Investor profile – Investment experience ● Minimum capital required ● UCITS – European legislation – Funds registered for public offering
  • 15. Workshop KUL 19-02-2014 | 02/20/14 | Risk profile and investment horizon Six main types of investment funds TARGET RISK-RETURN Equities Alternatives Diversified Fixed Income Money Markets 1 D to 1 Y 1Y to 3 Y 3 Y to 5 Y INVESTMENT HORIZON 15
  • 16. Workshop KUL 19-02-2014 | 02/20/14 | Traditional Vs Alternative Asset Classes Traditional Assets Alternative Strategies Relative Strategies 16
  • 17. Workshop KUL 19-02-2014 | 02/20/14 | European Investment funds market European Fund Market Calendar AuM (ex Fof in €Bn) Market size : € 6 220 Bn Source: Lipper FMI - May 2013 17
  • 18. Workshop KUL 19-02-2014 3. Key concepts
  • 19. Workshop KUL 19-02-2014 | 02/20/14 | What is risk? ● Risk is generally interpreted as the uncertainty of future outcomes ● Uncertainty becomes greater as the variability of returns increases 12-month rolling volatility – June 2003 – June 2012 60% Which is the riskiest asset class? 50% 40% 30% 20% 10% BUND S&P500 MSCI EM ENERGY Precious Metals EUR ICG Euro HY Dec 2011 Jun 2011 Dec 2010 Jun 2010 Dec 2009 Jun 2009 Dec 2008 Jun 2008 Dec 2007 Jun 2007 Dec 2006 Jun 2006 Dec 2005 Jun 2005 Dec 2004 Jun 2004 Dec 2003 Jun 2003 0% 19
  • 20. Workshop KUL 19-02-2014 | 02/20/14 | Volatility ● Measures the dispersion of returns for a given security or market index. Volatility can be measured by using the standard deviation or variance between returns from that same security or market index. ● It’s used to measure the risk greater potential loss. A higher volatility implies higher potential returns but also 50 45 40 35 30 25 20 15 10 5 0 1 2 3 LOW VOLATILITY ● 4 5 6 7 8 HIGH VOLATILITY Examples: – A share X has a stable price around EUR100. The company announces good quarterly results. The price rises to EUR105 then is stabilized around EUR103. The share is thus not very volatile. – A share Y has a valuation of EUR100. The same benefits are published. The share has a rise of 25% and thus gets to EUR125 and is stabilized to EUR120. The security Y is described as volatile. 20
  • 21. Workshop KUL 19-02-2014 | 02/20/14 | 21 Which is the riskiest asset class? ● Volatility is measured through the standard deviation of the returns ● Standard deviation is the measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of variance (the sum of squared differences of each individual return from the average return). MSCI USA index Jan 2000-October 2011 Barclays Capital US Aggregate Gov't Jan 2000-October 2011 UBS Convertible Global Focus* Jan 2000-October 2011 400 800 350 700 300 600 250 500 200 400 150 300 100 200 50 100 Source: Bloomberg, BNP Paribas Investment Partners Volatility does not measure fat tail risks (i.e. the risk of extreme and unanticipated events)! *Hedged in EUR 2.00% 1.60% 1.20% 0.80% 0.40% 0.00% -0.40% -0.80% -1.20% -1.60% 2.00% 1.60% 1.20% 0.80% 0.40% 0.00% -0.40% -0.80% -1.20% -1.60% -2.00% 2.0% 1.6% 1.2% 0.8% 0.4% 0.0% -0.4% -0.8% -1.2% -1.6% -2.0% - -2.00% 1,000 900 800 700 600 500 400 300 200 100 -
  • 22. Workshop KUL 19-02-2014 | 02/20/14 | Risk is not only about the volatility of returns… ● There are many different sources of risk: market risk, credit risk, illiquidity risk, manager risk etc. ● All returns over cash exploit a sort of risk premium: Default premium Equity Premium Liquidity premium Term premium Risk free return Bond return Loan return Equity return Greek Bond return 22
  • 23. Workshop KUL 19-02-2014 | 02/20/14 | The importance of diversification ● From year to year, there’s no telling which asset classes will be the best performers Best to worst performing asset classes from top to bottom for the years 2002 to 2012. Source: Allianz Global Investors and Morningstar Direct. Data as of 12/31/12. 23
  • 24. Workshop KUL 19-02-2014 | 02/20/14 | The importance of Asset Allocation ● Asset Allocation is the single most important driver of returns 4.6% 2.1% 1.8% Factors Explaining Dynamics of Returns over Long Horizons Source: BNP Paribas Investment Partners, Ibbotson and Kaplan 91.5% *Based on the study by Ibbotson and Kaplan, 2000 Asset allocation Security selection Market timing Other factors The asset allocation decision explains up to 90% of portfolio returns* 24
  • 25. Workshop KUL 19-02-2014 | 02/20/14 | Types of asset allocation ● 3 types of asset allocation differentiated by investment horizon: – Strategic Asset Allocation: define risk budget (long-term horizon) – Dynamic Strategic Asset Allocation (“Smart Benchmark”): optimised use of risk budget (5-7 yr horizon) – Tactical Asset Allocation: benefit from short-term market opportunities (3-12 months) ● The shorter the time horizon, the more flexible the asset allocation should be… Tactical Asset Allocation Dynamic Strategic Allocation Strategic Asset Allocation Source: BNP Paribas Investment Partners Investment horizon 25
  • 26. Workshop KUL 19-02-2014 | 02/20/14 | Strategic asset allocation Determining the appropriate risk level of the portfolio Key considerations Investment Horizon Return target Risk Aversion The shorter the investment horizon the less risk should be taken What is the minimum level of return required over the investment horizon? Maximum annual loss tolerance i.e. the investor will not accept an annual loss greater than x% 26
  • 27. Workshop KUL 19-02-2014 | 02/20/14 | Benchmark ● Benchmark: A standard allowing risk/return comparisons and against which the performance of a mutual fund or investment manager can be measured. Either: – An Index (ie. Dow Jones, CAC 40, S&P 500, etc.) – Combination of several indices: synthetic index or composite (ie: BRIC) – A reference rate (ie. EONIA, EURIBOR, LIBOR…) CUMULATIVE PERFORMANCE 200 B NPPARIBAS A S L1 E qui ty tB es t Sel ecti on E urope (sCl as si c) BNP P A RI B L1 Equity Bes Selec tion Europe (Clas ic) MSC I Europe Net Return Index (v) 175 150 125 117.59 117.59 117.22 100 75 '04 '05 '06 '07 '08 '09 '10 ● Tracking-error: the divergence between the performance of a portfolio and that of the associated benchmark. Higher tracking error means higher risks taken by the portfolio manager. 27
  • 28. Workshop KUL 19-02-2014 | 02/20/14 | Performance ● Beta Vs Alpha: Distinction between performance coming from structural exposure to the market and active management from the portfolio manager Portfolio = Market Exposure Beta (β) + Active Management Alpha (α) ● Net Asset Value (NAV): A fund's price per share: – The per-share amount of the fund is calculated by dividing the total value of all the securities in its portfolio, less any liabilities, by the number of fund shares outstanding. – The performance is measured according to the historical series of NAV. – NAV per share is computed in general once a day based on the closing market prices of the securities in the fund's portfolio. All mutual funds' buy and sell orders are processed at the NAV of the trade date. However, investors must wait until the following day to get the trade price. 28
  • 29. Workshop KUL 19-02-2014 | 02/20/14 | Standard Investment Process ● Various parties involved in the investment process: – Strategists and research analysts, portfolio managers, traders, brokers ● Consecutive steps in the portfolio construction and placement of orders: Investment Process Fund Manager Strategy Team - Macroeconomic Outlook - Research and Analysis - Portfolio implementation - Risk Management - Placement of orders Asset Manager Dealing Desk Broker - Concentration of orders - Negotiation of prices - Best-execution policy - Execution of the orders - Information and research provider External Providers Risk control in every step of the process 29
  • 30. Workshop KUL 19-02-2014 4. Fund management
  • 31. Workshop KUL 19-02-2014 Fund management ● Many styles exist, many methodologies for fund management have been developed: – Active / passive – Benchmark tilted / free – Systematic-Quantitative / Qualitative – Manager styles – Investing in synthetic instead of ‘real’ underlyings ● BUT alpha-diversification is key ! – Style performances depend on market situation – Combining manager skills and methodologies increase potential performance
  • 32. Workshop KUL 19-02-2014 Synthetic products vs ‘real’ underlyings ● Many synthetic products are used for risk hedging or portfolio positioning, e.g. in fixed income Fixed Income risks Interest rates Interest rates Hedging Interest rate swaps (IRS) are contracts where floating payments can be received in exchange of pre-defined fixed amounts. Bond futures are used to purchase or sell government bonds on a given forward date at predetermined price. Credit Credit Foreign Exchange Foreign Exchange Credit Default Swap (CDS) protect investors from credit events on specific companies (or countries) against a stream of fixed payment. FX forwards enable investors to buy or sell on a forward date a given currency against another currency at a predetermined rate. If derivatives are used for hedging purposes, they can also be used to take directional exposures or to implement relative value strategies.
  • 33. Workshop KUL 19-02-2014 Synthetic products vs ‘real’ underlyings ● Synthetic products need to be treated carefully: – Volatility / risk possibly higher  focused risk – Leveraging – Not accessible to all investors ● But in the hands of specialists they are crucial instruments … in fund management and risk hedging ● Synthetic products can also be used in the management of ETFs and indexed funds and are used in the light of structured funds (with capital protection)
  • 34. Workshop KUL 19-02-2014 5. ETFs and Indexed funds
  • 35. Workshop KUL 19-02-2014 Indexed Funds vs. ETFs Indexed Fund 1976 First vehicle launched in ETF 1993 Trading -Daily creation and redemption at NAV -Trade any time during the stock exchange opening hours Price information -Daily NAV -Real time price, quoted in the stock market Bid/Offer spread -No -Yes -Strategic allocation, suitable for core investment -Tactical flexibility possible: short selling, transition management, intra-day trading, cash management, etc. - Advanced trading strategies: options on ETFs Strategy - Different share classes and fee levels Fees Adapted to: - Total cost of ownership of institutional share classes not always higher than for ETFs • Large investments with medium to long term horizons • Retail investors who do not need intraday liquidity - Management fee: same for institutional and retail clients • Tactical allocation • Short-term views • Gain quick exposure 35
  • 36. Workshop KUL 19-02-2014 Comparison of the 3 replication methods Synthetic Replication Cash Replication Full replication Constraints  Investable underlying / Market access  Advantages Optimized replication  Investable underlying / Market access  Requires an OTC market Important minimal size  Simple and straightforward implementation  Allows cash replication of large indices  Fiscal constraints (stamp duties, PEA)  Reduced TE  Enlarged choice of replicated indices (e.g.: emerging equities, commodities, double-short)  High level of transparency Disadvantages  Not always cheaper than full replication  Less flexible: swap to be rolled at maturity  Tracking error potentially higher  Rebalancing costs  Cost of the swap, impacts fund performance  Performance and TE depend on a model  Risks associated to the underlying exposure Risks  Risks associated to the underlying exposure  Risks associated to the underlying exposure  Model risk  Counterparty risks linked to securities lending (limited to 25% of the assets for PEA* funds)  Counterparty risks linked to securities lending (limited to 25% of the assets for PEA* funds)  Limited and well identified counterparty risk: swap value limited to a maximum of 10% of the NAV  Collateral risk 36
  • 37. Workshop KUL 19-02-2014 37 Expert in all replication management methods Full Replication Inventory = Optimised Replication Index  The fund manager buys all the securities within the underlying index in respective proportions  Rigorous rebalancing, corporate actions & FX risk management  Various enhancement techniques allows to offset part of the costs Semi-Index … Index  The fund manager buys a sample of the securities within the underlying index in order to replicate the index as closely as possible  Model based  Various enhancement techniques allows to offset part of the costs  Securities lending  Securities lending  Dividend optimization Synthetic Replication Money Market or Basket of stocks Swap: - asset + index Index Perf.  The fund manager enters into a transaction with a swap partner  Depending on whether the index is stock or bond index, the fund manager buys a basket of shares or bonds and then swaps its performance for that of the index  Counterparty risk is limited to 10% of the total Assets of the ETF  Dividend optimization 37
  • 38. Workshop KUL 19-02-2014 Synthetic replication process Counterparty ETF Inventory of synthetic structures Max. 10% Derivatives Inventory • US or EUR money market instruments (min. AA rating, average 3 months duration) or Euro zone stocks • Derivatives and mutual funds up to 10% The ETF pays the performance of the basket Transparent Inventory Money market instruments – Performance Swap Euro zone stocks The ETF gets the performance of the replicated index Index Swap features ● Open architecture, MIFID ● Maximum maturity: 12 months ● Limited counterparty risk (reset at any time + early termination option at any time) ● Minimum rating for the counterparties: A1- P1 ● Strictly controlled counterparty list Inventory available upon request
  • 39. Workshop KUL 19-02-2014 39 Risk Mitigation on synthetic funds • The SWAP replication structure introduces counterparty risk, limited to 10% of fund assets under the UCITS regulation • The ability to negotiate swap terms is a matter of utmost importance, the swap being an OTC instrument  Open architecture swap bidding process, including multiple counterparties  Strict eligible counterparty list monitored by the Risk Management department  BNPP IP’s counterparty risk management process requires careful counterparty selection, monitoring and review  Particular focus is given to the creditworthiness, operational efficiency, best execution capacities, and liquidity providing capacities of the counterparty  Leverages on the qualified expertise and extensive resources of the Structuring team to negotiate swap terms  Swap renegotiated every 6 to 12 month  Early termination options (without any notice period) allows to rapidly withdraw exposure to a given counterparty  Funds holdings composed of UCITS eligible securities with high liquidity :  For Equity EasyETFs, the funds invest in Eurozone large capitalization stocks (stocks of the Euro Stoxx 50 index)  For Commodity EasyETF, the fund invests in 3-months US treasury bills  Fund holdings and counterparty list available upon request
  • 40. Workshop KUL 19-02-2014 6. Examples of fund & fund styles
  • 41. Workshop KUL 19-02-2014 Best Selection Equity Europe
  • 42. Workshop KUL 19-02-2014 Three key pillars A differentiated approach to fundamental long term investment • A long-term stock picker – 3 to 5 year holding period – ‘Straw hats in winter’ idea generation • Play to our strengths – fundamental research – In-depth fundamental research undertaken by a large and experienced team – Peer review decision making process – Risk budget allocated appropriately • A focus on industry structure – Identify and invest in companies offering a sustainable competitive advantage in wellstructured industries
  • 43. Workshop KUL 19-02-2014 Investment philosophy The importance of industry structure in practice: the Herfindahl-Hirschman Index ● The key to assessing the strength and sustainability of a company’s earnings profile is to understand the structure of that company’s industry. Companies that operate in well-structured industries have a greater ability to generate attractive and sustainable excess returns, and can do so with less risk ● The European Equity Select team uses the Herfindahl-Hirschman Index (HHI*) to assess the quality of an industry’s structure. This index is used by the US Department of Justice to help “properly define and measure industry concentration” “A merger is unlikely to create or enhance market power or to facilitate its exercise unless it significantly increases concentration and results in a concentrated market, properly defined and measured” US Department of Justice Horizontal Merger Guidelines *HHI is defined as the sum of the squares of the market shares of each individual firm and can range from <1 to 10,000, moving from a very large number of very small firms jostling for market share to a single monopolistic producer dominating the market.
  • 44. Workshop KUL 19-02-2014 Investment philosophy Practical application of the HHI Global beer industry structure and profit margins of market leaders by country Source: BoA Merrill Lynch and BNP Paribas Asset Management, January 2012 For illustration purposes only. 44
  • 45. Workshop KUL 19-02-2014 Investment process Overview Idea generation HHI industry structure ‘Straw hats’ in winter * Risk Management screens BNPP IP global research Industry analysis Company analysis not at ne ml p m i e I Stock risk management Stock knowledge Industry structure Peer scrutiny DCFs / models Peer review process Portfolio risk management Portfolio construction Risk mgt systems Sector limit Stock limit *‘Straw hats in winter’ = a contrarian approach, focusing on out-of-favour industries. 45
  • 46. Workshop KUL 19-02-2014 Overall performance Parvest Equity Best Selection Europe cumulative performance from February 2008 to January 2014 Parvest Equity Best Selection Europe cumulative performance (gross of fees) 160 32% Cumulative excess return (RHS) Best Select Europe (LHS) * MSCI Europe NR (LHS) 140 27% 22% 120 17% 100 Outperformance in both declining and rising markets 80 7% 60 2% 40 -3% Source: BNP Paribas Asset Management (Gross of fees performance, end January 2014, In Euro) Past performance is not indicative of current or future performance •Benchmark applicable from 01 January, 2009: MSCI Europe (NR) Index (€). Previous benchmark : MSCI PAN-EURO (NR) Index •On May 17th 2013, BNP Paribas L1 Equity Best Selection Europe was transferred into a sub-fund of the PARVEST Luxembourg SICAV, creating PARVEST Equity Best Selection Europe •All performance and risk indicators numbers presented in this document prior to May 17th 2013 are those of the former BNP Paribas L1 Equity Best Selection Europe 8 0 . r v é f 8 0 . r v a 8 0 n i u j 8 0 t û o a 8 0 . t c o 8 0 . c é d 9 0 . r v é f 9 0 . r v a 9 0 n i u j 9 0 t û o a 9 0 . t c o 9 0 . c é d 0 1 . r v é f 0 1 . r v a 0 1 n i u j 0 1 t û o a 0 1 . t c o 0 1 . c é d 1 . r v é f 1 . r v a 1 n i u j 1 t û o a 1 . t c o 1 . c é d 2 1 . r v é f 2 1 . r v a 2 1 n i u j 2 1 t û o a 2 1 . t c o 2 1 . c é d 3 1 . r v é f 3 1 . r v a 3 1 n i u j 3 1 t û o a 3 1 . t c o 3 1 . c é d 0 1 t x d I c n a m o f r e P 12% 46
  • 47. Workshop KUL 19-02-2014 Quantitative fixed income
  • 48. Workshop KUL 19-02-2014 Example : BNPP B Control Quam Dynamic Bonds What is it ? DYNAMIC BONDS PORTFOLIO Uses the full fixed income universe, from money market to high yield and convertible bonds  Fund of funds, open architecture  Regular rebalancing's, dynamic asset allocation Purely based on a quantitative strategy : tracking momentum whilst controlling risk  Risk in line with a classic fixed income fund, flexibility much higher 48
  • 49. ASSET ALLO CATION Workshop KUL 19-02-2014 100% 80% 60% 40% 20% 0% 2000 Max Average Min 2001 2002 MoneyMarket Global Corporate Money Market 100.00% 6.35% 1.12% MediumS hort Term 29.08% 1.69% 0.00% Flexible Simulations 2003 2004 Absolute return 42.83% 4.69% 0.00% 2005 2006 2007 2008 Medium-Short Term Long duration High Yield Global 5.13% 0.37% 0.00% 2009 2010 2011 2012 Absolute return Convertible Emerging Markets Long Term Convertibles Corporate 96.64% 34.51% 0.00% Adaptable 55.16% 7.47% 0.00% High Yield 43.15% 3.94% 0.00% Control 82.83% 18.83% 0.00% Emerging Markets 67.46% 22.14% 0.00%
  • 50. Workshop KUL 19-02-2014 DYNAMIC BONDS UNIVERSE 3 YEAR ROLLING RETURN TRADITIONAL FI UNIVERSE rolling 3 yr returns Short/Medium Term Government BNP Paribas B Fund II QuAM Bonds 50% Inflation linked Absolut Return Long Term Dynamic Bonds 42.0 % 40% 30% 24.4% 20% 10% 14.6% 0% -10% 2003 5.1% 2004 2005 Dynamic Bonds Max Min 41.98% 5.05% 2006 2007 2008 2009 2010 BNP Paribas B Fund S hort/ II QuAM Bonds Medium Term 14.63% 17.67% 5.99% 3.98% Consistentency Concentration Vs. dispersion 2011 Inflation linked 23.74% -1.27% 6.0 % 1.3% 2012 Long Term Government 23.81% 0.03% 24.39% 2.20% Absolut Return 23.56% 4.43% Asymmetry Bron: ETS
  • 51. Workshop KUL 19-02-2014 DYNAMIC BONDS UNIVERSE HIGHER RISK FI UNIVERSE rolling 3 yr returns 3 YEAR ROLLING RETURN Emerging Markets Convertibles Corporate Dynamic Bonds High Yield BNP Paribas B Fund II QuAM Bonds 84.0% 70% 42.0 % 20% 14.6% 5.1 % -30% 2003 2004 2005 2006 2007 2008 2009 2010 2011 6.0 % 2012 -25.6% Dynamic Bonds Max Min 41.98% 5.05% BNP Paribas B Fund II QuAM Bonds 14.63% 5.99% Consistency * Results Dynamic bonds based on simulations Emerging Markets 60.58% -6.99% Concentration Vs. dispersion Corporate High Yield Convertibles 37.77% -11.33% 84.04% -25.63% 40.03% -20.10% Asymmetry 51
  • 52. Workshop KUL 19-02-2014 The GURU methodology
  • 53. Workshop KUL 19-02-2014 GURU methodology and construction: The investment process Uniform methodology for all regions: Combining the advantages of both active and passive investments Advantage of Active Investments: Advantage of Passive Investments: Transparency and systematic approach Selection of companies Universe Selection 1 2 Company Selection 3 Liquidity Profitability Simplicity Selection of the most liquid securities in every region ●Is the company profitable? ●Profitability, perspectives and valuation are of equal importance in the company selection process 1/3 Europe ● US Prospects ● Asia (ex Japan) ● Global Emerging ●Is the company going the right way? ● I S AB E HT OT KCAB ● Global Developed ● All Countries 1/3 Valuation 1/3 ●Is the company a good bargain? The GURU Strategy Portfolio Construction Liquidity ●Monthly rebalancing of a fraction of the portfolio ‘Long Only’ GURU indices ●US ●Europe ●Asia ex Japan ●Global Emerging ●World Developed ●All Country ‘Long/Short’ GURU indices Risk Control ●US ●Volatility control mechanism ●Europe + US ●Europe
  • 54. Workshop KUL 19-02-2014 GURU “Long only” approach Example company scores (as of end of December 2013) "To me, it's obvious that the winner has to bet very selectively. It's been obvious to me since very early in life. I don't know why it's not obvious to very many other people." (Charlie Munger) ● A balanced approach based on analyzing companies’ fundamentals according to three groups of criteria: – – – Profitability Prospects Valuation   10.0 10.0 10.0 10.0 10.0 EPS mom. 9 8 10 10 8 Price mom. 10 10 9 9 10 Info ratio 9 9 9 10 10 10 10.0 9 8 9 10 9.0 10.0 9 10 10 10.0 8 8.0 RoEA Fresenius Roche Holding Reed Elsevier Next Anheuser-Bush Inbev Distribubidora Intnac. de Alimentacion Grifols Novo Nordisk 'B' Intercontinental Hotels Group William Hill Profitability 10 10 10 10 10 Indices Number of securities in the final selection Prospects PEG 9.3 9.0 9.3 9.7 9.3 6 8 6 7 6 EV/EBIT to Gth 5 5 3 2 3 8 8.3 7 10 10 10 10 9.7 10.0 8 10 9 9 10 10 GURU US 40 P/FCF Valuation 9 7 10 8 9 6.7 6.7 6.3 5.7 6.0 GURU Score 8.67 8.56 8.56 8.44 8.44 21.0% 15.3% 19.7% 20.0% 21.8% GURU Europe* 1 1 1 1 1 7 5 6.3 8.22 32.5% 1 9 7 7 3 2 3 6.0 4.3 8.22 8.11 32.6% 21.4% 1 1 9.0 3 3 9 5.0 8.00 24.8% 1 9.7 3 9 6.0 7.89 22.2% 1 GURU Europe, GURU Asia ex Japan, GURU Emerging 6-mth Vol GURU Developed, GURU All Country 30 *A “1” in the GURU Europe column means that the stock has been selected for the month, if there is a “0”, it means that the stock has not been selected for the monthly selection. Sources: BNP Paribas and Bloomberg. For illustrative purpose only, subject to change. Scoring scale from 0 to 10 for columns RoEA to Valuation 50
  • 55. Workshop KUL 19-02-2014 Historical performance and risk analysis of the fund THEAM Quant Equity Europe Guru vs. traditional benchmarks* 225 205 185 The Fund THEAM Quant Equity Europe Guru based on the strategy index BNP Paribas Guru Equity Europe Long was launched on 7 May 2009. THEAM Quant Equity Europe Guru STOXX Europe 600 Euro Stoxx 50 165 145 125 105 85 * Source: Bloomberg, BNP Paribas as of 30 December 2013. Fund performance is expressed net of management fees and in EUR. Past performance or achievement is not indicative of current or future performance. May 09 – December 13 Cumulative performance Annualised return Volatility Sharpe ratio Information ratio Beta Tracking Error Historical VaR 95% (5 working days) Historical VaR 95% (1 year) Max Drawdown Corresponding period Recovery time (in days) THEAM Quant Equity Europe Guru STOXX Europe 600 Euro Stoxx 50 103.54% 16.49% 18.93% 0.85 0.48 1.02 0.06 -3.85% -0.12 -28.46% Jan. 2011 - Oct. 2011 302 82.18% 13.75% 17.77% 0.75 -3.59% -0.10 -24.41% Feb. 2011 - Sep. 2011 236 50.42% 9.17% 22.78% 0.38 -4.81% -0.20 -33.26% Feb. 2011 - Sep. 2011 408 * Source: Bloomberg, BNP Paribas as of 30 December 2013. Historical performances of share A - EUR since May 2009. Past performance is not a reliable indicator of future results. Fund performance is expressed net of management fees. The Fund is launched since 7th of May 2009. Benchmarks: Stoxx Europe 600, Bloomberg code: <SXXR Index>. Euro Stoxx 50, Bloomberg code: <SX5T Index>.
  • 56. Workshop KUL 19-02-2014 Low Volatility Equity investing
  • 57. Workshop KUL 19-02-2014 Do high risk stocks generate higher returns? Empirical evidence (based on average returns) Global Universe, MSCI World Index – in USD Low volatility stocks have higher Sharpe ratios than higher volatility stocks The same applies to other regions: USA, Europe, Japan, Emerging Markets, Asia (ex Japan), etc. Sharpe 0.70 Ratio 0.60 Sharpe Ratio of stocks ranked by volatility into equally weighted quintiles Global Universe: Jan 95 - Dec 10 0.50 0.40 0.30 0.20 0.10 - Annualised returns Excess Return over cash rates (%) Volatility (%) Sharpe Ratio 1 - Low Vol 2 3 4 8.6 13.9 0.61 8.2 16.7 0.49 9.1 18.9 0.48 7.9 21.5 0.37 Source : BNPP IP, MSCI, Exshare 5 - High Vol 9.4 27.4 0.34
  • 58. Workshop KUL 19-02-2014 The Volatility Anomaly goes beyond defensive sectors Empirical evidence (unpublished results based on average returns) ● The low volatility anomaly can be found across the board within global sectors Global universe, developed countries, Jan 95 - Dec 11 1.0 0.9 1.0 Sharpe ratio Low vol deciles all High vol deciles 0.9 0.8 0.5 0.4 0.4 0.3 0.3 0.2 0.2 0.1 0.1 0.0 High vol deciles 0.6 0.5 all 0.7 0.6 Low vol deciles 0.8 0.7 Sharpe ratio 0.0 CONS DISC Annualised return Volatility low vol 10.5% 13.6% CONS STAPLES high vol 11.1% 31.4% low vol 13.2% 10.6% high vol 9.7% 20.7% ENERGY low vol 17.4% 16.3% high vol 18.3% 41.8% FINANCIALS low vol 11.8% 12.9% high vol 11.9% 56.3% HEALTH CARE low vol 12.8% 12.3% high vol 14.2% 33.1% INDUSTRIALS low vol 11.6% 12.4% high vol 5.3% 30.3% INFO TECH low vol 12.9% 17.3% high vol 9.0% 49.1% MATERIALS TELECOM SCVS low vol 12.1% 15.7% high vol 18.1% 32.7% low vol 15.8% 17.2% high vol 11.8% 48.6% The least volatile stocks have higher Sharpe ratios in all the 10 GICS sectors Average Sharpe Ratio across sectors Lowest volatility decile: 0.68 All deciles: 0.45 Highest volatility decile: 0.25 Source: BNPP IP, MSCI, Exshare. UTILITIES low vol 13.5% 12.3% high vol 14.5% 31.5%
  • 59. Workshop KUL 19-02-2014 Investment process A systematic investment process, aiming at controlling the tracking error risk rather than minimising absolute volatility Portfolio Construction Beginning Universe Application of constraints Low Volatility Universe High Low Consumer Discretionary Consumer Staples Energy Portfolio Implementation 10% 10% Screening 10% Optimisation 1. Long- only constraint 2. Weights of stocks Finance 10% Health Care 10% 3. Beta constraint Industry 10% 4. Turnover constraint Information Technology 10% Telecommunication Specific event risk 10% Utilities Execution and controls 10% Materials Final portfolio 10% Liquidity Risk assessment Monthly rebalancing Characteristics Exposure to equities Risk reduction objective Tracking error 100% 20% vs. MSCI World 5% to 7% Max. stock weight Beta ex-ante Turnover (monthly) 2% 0.8 8% (100% p.a.)
  • 60. Workshop KUL 19-02-2014 Parvest Equity World Low Volatility Performance since implementation of the strategy (April 1st 2011) PERFORMANCE Cumulated Annualised RISK Monthly annualised Tracking Information Volatility error ratio 1M 3M YTD 1Y 2Y 3Y Since inception 29/11/2013 30/09/2013 31/12/2012 31/12/2012 30/12/2011 31/12/2010 31/03/2011 31/12/2013 31/12/2013 31/12/2013 31/12/2013 31/12/2013 31/12/2013 31/12/2013 Parvest Equity World Low Volatility 0.98% 5.13% 17.20% 17.20% 14.28% - 12.96% 7.79% - - MSCI World Net Return Index 0.90% 6.10% 21.20% 21.20% 17.54% - 11.88% 9.07% 5.02% 0.22 31/03/2011 - 31/12/2013 Returns gross of fees in euro ● Returns are in line with our expectations, in a bullish but uncertain market, mainly driven by macroeconomic data ● Our stock selection based on the least volatile stocks has been profitable ● Since inception of the strategy, the fund has outperformed the market cap index with lower risk Source: BNPP IP, as of 31/12/2013 Performance gross of fees in EUR. Past performance is not an indicator to the current nor future performance.
  • 61. Workshop KUL 19-02-2014 GURU and Low Vol combination An example of alpha-diversification
  • 62. Workshop KUL 19-02-2014 Guru and Low Vol offer complementary systematic strategies ● Low Vol is a defensive process (less volatile than the benchmark) – It’s over-performance is based on the “Low Vol Anomaly” factor – Low Vol All country is reconstructed by combining the 2 flagships : Low Vol developed and Low Vol Emerging ● Guru is a high conviction process (more volatile than the benchmark) – It’s over-performance is based on Value, Momentum and Profitability factors – Guru is the All Country version used in the flagship ● The only common point of the 2 systematic strategies is to consider that classical “benchmarked” investing is sub-optimal. ● A combination of the 2 should however compare favorably to benchmarks, since both are an improvement and of a different type…
  • 63. Workshop KUL 19-02-2014 A 50% repartition doubles returns of the bench, at similar risk Past 10y Risk and Return Profiles Return (in USD, yearly, gross of fees) Based on MSCI All Country, Monthly data from Dec 2002 to Dec 2013, in USD, gross of fees, annualized Risk (annual volatility ex-post)
  • 64. Workshop KUL 19-02-2014 On a yearly basis, years of global underperformance are rare In the last 10 years, only 2012 would have been underperforming (before fees) Monthly data from Dec 2002 to Dec 2013, in USD, gross of fees, annualized
  • 65. Workshop KUL 19-02-2014 7. Conclusion and Q&A
  • 66. Workshop KUL 19-02-2014 Investing in practice ● Investing is more than just equities or bonds only ● Risk profile and investment horizon of the investor are key elements for an investment decision ● Risk of the different asset classes has an important impact on the asset allocation of the investor’s portfolio – Diversification is key – Both synthetic and ‘real’ underlying instruments can be used to build a portfolio ● Different management styles are complementary
  • 67. Workshop KUL 19-02-2014 14/10/2013 Disclaimer This material has been prepared by LEARN SAS¹ for licensing to BNP Paribas Asset Management S.A.S. (“BNPP AM”)², a member of BNP Paribas Investment Partners (BNPP IP)³ . This material is produced for information purposes only and does not constitute: 1. an offer to buy nor a solicitation to sell, nor shall it form the basis of or be relied upon in connection with any contract or commitment whatsoever or 2. any investment advice. This material makes reference to certain financial instruments (the “Financial Instrument(s)”) authorised and regulated in its/their jurisdiction(s) of incorporation. No action has been taken which would permit the public offering of the Financial Instrument(s) in any other jurisdiction, except as indicated in the most recent prospectus, offering document or any other information material, as applicable, of the relevant Financial Instrument(s) where such action would be required, in particular, in the United States, to US persons (as such term is defined in Regulation S of the United States Securities Act of 1933). Prior to any subscription in a country in which such Financial Instrument(s) is/are registered, investors should verify any legal constraints or restrictions there may be in connection with the subscription, purchase, possession or sale of the Financial Instrument(s). Opinions included in this material constitute the judgment of LEARN SAS at the time specified and may be subject to change without notice. LEARN SAS is not obliged to update or alter the information or opinions contained within this material. Investors should consult their own legal and tax advisors in respect of legal, ac-counting, domicile and tax advice prior to investing in the Financial Instrument(s) in order to make an independent determination of the suitability and consequences of an investment therein, if permitted. Please note that different types of investments, if contained within this material, involve varying degrees of risk and there can be no assurance that any specific investment may either be suitable, appropriate or profitable for a client or prospective client’s investment portfolio. This document is directed only at person(s) who have professional experience in matters relating to investments (“relevant persons”). Any investment or investment activity to which this document relates is available only to and will be engaged in only with Professional Clients as defined in the rules of the Financial Services Authority. Any person who is not a relevant person should not act or rely on this document or any of its contents. ¹ LEARN SAS (www.learn.fr) is a training & consulting company registered in France under number 750 820 037 ² BNPP AM is an investment manager registered with the “Autorité des marchés financiers” in France under number 96-02, RCS Paris 319 378 832.

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