Risk-Adjusted Return: Quarterly Update 2012 Q4
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  • 1. Economics Nobel Laureate William F. Sharpe developed the Sharpe ratio to measure risk-adjustedinvestment return. The Sharpe ratio allows us to evaluate the performance of an asset in terms ofrisk as well as excess return generated.Risk-Adjusted Return: Quarterly UpdateR RfRf2012 Q4
  • 2. RISK ADJUSTED RETURNRISK ADJUSTED RETURNRISK ADJUSTED RETURNONE YEAR 30/12/2011 - 30/12/2012Over this 1-year period, 7 of the top 8 best Sharpe ratios have been in fixed income, the exceptionbeing Risk Parity. On an excess return basis, Emerging Market Equities performed 3rd and 5th bestrespectively. When measured on a risk-adjusted basis, they drop to 8th and 9th in our table.*See appendix for a list of benchmarks & definitions.
  • 3. RISK ADJUSTED RETURNRISK ADJUSTED RETURNRISK ADJUSTED RETURNTHREE YEAR 30/12/2009 - 30/12/2012Over this 3-year period, 8 of the top 9 best sharpe ratios have been in fixed income, the exceptionbeing Risk Parity. Emerging Market Equities and Developed Market Equities performed compara-tively well when measured by excess return, however on a risk-adjusted basis they fall towards thebottom end of the chart.*See appendix for a list of benchmarks & definitions.
  • 4. RISK ADJUSTED RETURNRISK ADJUSTED RETURNRISK ADJUSTED RETURNFIVE YEARS 30/12/2007 - 30/12/2012Over this 5-year period, only 8 out of the 13 asset classes delivered positive excess returns, 7 ofwhich were in fixed income and the other was Risk Parity. Leveraged Loans US, Emerging MarketEquities, HF Macro, Developed Market Equities and Commodities saw returns below the risk freerate over the period.RISK ADJUSTED RETURNRISK ADJUSTED RETURNRISK ADJUSTED RETURN*See appendix for a list of benchmarks & definitions.
  • 5. DisclaimerThe information herein was obtained from various sources. We do not guarantee every aspect of its accuracy. The information is for your private informa-tion and is for discussion purposes only. A variety of market factors and assumptions may affect this analysis, and this analysis does not reflect allpossible loss scenarios. There is no certainty that the parameters and assumptions used in this analysis can be duplicated with actual trades. Anyhistorical exchange rates, interest rates or other reference rates or prices which appear above are not necessarily indicative of future exchange rates,interest rates, or other reference rates or prices. Neither the information, recommendations or opinions expressed herein constitutes an offer to buy or sellany securities, futures, options, or investment products on your behalf. Unless otherwise stated, any pricing information in this message is indicative only,is subject to change and is not an offer to transact. Where relevant, the price quoted is exclusive of tax and delivery costs. Any reference to the terms ofexecuted transactions should be treated as preliminary and subject to further due diligence.Redington Limited is an investment consultant company regulated by the Financial Services Authority. The company does not advise on all implications ofthe transactions described herein. This information is for discussion purposes and prior to undertaking any trade, you should also discuss with yourprofessional, tax, accounting and / or other relevant advisers how such particular trade(s) affect you. All analysis (whether in respect of tax, accounting, lawor of any other nature), should be treated as illustrative only and not relied upon as accurate©Redington Limited 2012. All rights reserved.AppendixFreddie EwerAnalyst: Investment Consultingfreddie.ewer@redington.co.ukJonathan LethamAnalyst: ALM & Investment Strategyjonathan.letham@redington.co.ukHere we look at the risk-adjusted performance across asset classes for the past one, three and five years. The calculations that underlie this analysis usemonthly data sourced from Bloomberg. Excess return is taken to be the annualised return of the asset class for the relevant period above the risk free ratewhich is calculated using the UK 3 Month LIBOR total return index. Volatility is the standard deviation of monthly excess returns. For all asset classesapart from Investment Grade Credit and High Yield Bonds, total return indices are used to calculate the absolute returns. For Investment Grade and HighYield, interest rate hedging is assumed and the excess return over swaps is used for the excess return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"B)4$[1C($#+Q+C1O+($JB# M<7T9 587T9 M675TMonthly DataMonthly Data1 Year3 Year5 Year Monthly Data