Arkos CapitalJune 2012This document is confidential and intended solely for the use of the person to whom it is given or s...
About Arkos Capital SA (“Arkos”)Applying a solid and consistent investment approach since 2002     ● Swiss-based dedicated...
Arkos’ investment philosophyOur edge lies in our ability to identify stocks that will surprise by exceeding or falling sho...
Changes in earnings expectationsA meaningful indicator of future equity prices                                           4...
Developed Europe Long/Short EquityThis document is confidential and intended solely for the use of the person to whom it i...
Talentum Activedge, Talentum Enhanced and World Invest Absolute ReturnKey characteristics        Name                     ...
Talentum ActivedgeMonthly performance                                                           TALENTUM ACTIVEDGE – A EUR...
World Invest Absolute ReturnMonthly performance                                                 WORLD INVEST ABSOLUTE RETU...
Arkos’ investment processOverview                                              Risk management                            ...
Idea generationQuantitative screening              Earnings                                                               ...
Current environment     ● Valuation        – Developed markets are not cheap when measured on the average profits of the l...
Arbitrage opportunities in Europe     1. Visibility and growth versus structural problems          – Longs in leading grow...
Arbitrage opportunities in Europe (cont)     3. Long advertising agencies versus structural losers in media          – Adv...
Outlook for Europe L/S     ● In a market led by earnings growth (see 2004-mid 2008) a conservative approach based on earni...
Conclusions  ●   Our investment approach focuses on potential changes in earnings expectations  ●   The results across all...
Developed EuropeThemes              Sector – % breakdown                                               Activedge          ...
AppendixThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not...
Talentum Activedge - A EURPerformance from 23 Jul 2002 (inception) to 31 May 2012             Offshore Fund – Track record...
World Invest Absolute Return - C EURPerformance from 7 Apr 2003 (inception) to 31 May 2012                                ...
Stock examplesWPP from 3 Jan 2006 to 1 Jun 2012          9                                                                ...
Stock examplesLong example - WPP  ● Leading advertising agency  ● Strong beneficiary of booming corporate cash flows      ...
Stock examplesPanalpina from 6 Nov 2007 to 1 Jun 2012                                                                     ...
Stock examplesShort example - Panalpina  ● Leading air and sea forwarding agent  ● After strong recovery in air traffic la...
Emerging Market Long/Short EquityThis document is confidential and intended solely for the use of the person to whom it is...
Talentum Emerging Alpha and World Invest Absolute EmergingKey characteristics        Name                          Talentu...
Talentum Emerging Alpha and World Invest Absolute EmergingMonthly performance                                             ...
World Invest Absolute EmergingPortfolio breakdowns as at 31 May 2012     Sector positions                   Long %        ...
Emerging markets themesOverview       Longs                                                                               ...
World Invest Absolute Emerging - C EURPerformance from 10 Jul 2009 (inception) to 31 May 2012      70 %                   ...
World Invest Absolute Emerging - C EURAnnual returns from 10 Jul 2009 (inception) to 31 May 2012                          ...
Stock selectionFundamental in-depth analysis   P&L                                      Cash Flow                         ...
Portfolio management  Goal  ● Maintain a consistently robust and liquid portfolio in accordance with the investment guidel...
Risk management Goal ●   Manage risk proactively at each stage of the investment process (idea generation, portfolio const...
Risk managementPre-trade risk controls   Factors used to assess pre-trade single positions and level of portfolio risk:   ...
Risk management function  ●   Risk manager has independent supervisory function and operates at arms’ length  ●   Monitors...
Risk managementOverbought style indicator      115                                                                        ...
Risk managementCorrelation management                                     factor                  corr     beta      t-sta...
Risk managementStress testing                        FROM       TO         EUROTOP 100     TALENTUM                       ...
Arkos’ organisational structure                                                          Board of Directors               ...
Arkos’ investment teamBiographies     Gianmarco Mondani                                               Roberto Cantaluppi  ...
Arkos’ investment teamBiographies (cont)     Paolo Longinotti                                            Davide Marchesin ...
Arkos’ investment teamBiographies (cont)     Enrico Camera                                              Iain Cartmill     ...
Arkos’ investment teamBiographies (cont)     Aldo Meroni                                                Jonathan Stanford ...
Arkos’ investment teamBiographies (cont)     Fabio Trancanelli (Risk Manager)     Risk Manager. Joined Arkos Capital S.A. ...
ArkosAdditional fund information       Developed Europe                          Prime Brokers/ Custodians             Adm...
Gam arkos   citywire germany 2012
Gam arkos   citywire germany 2012
Gam arkos   citywire germany 2012
Gam arkos   citywire germany 2012
Gam arkos   citywire germany 2012
Gam arkos   citywire germany 2012
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Gam arkos citywire germany 2012

  1. 1. Arkos CapitalJune 2012This document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  2. 2. About Arkos Capital SA (“Arkos”)Applying a solid and consistent investment approach since 2002 ● Swiss-based dedicated asset management company with EUR 607 m under management ● Became part of GAM Group AG through agreement reached in February 2012* ● A consistent approach, based on fundamental analysis and a bottom-up approach to stock selection ● Core team of seven long-standing and highly experienced investment professionals ● Managing a range of liquid and transparent absolute return funds, both offshore and UCITS ● Significant portion of employees’ liquid assets invested in the funds ● Authorised and regulated by the Swiss Financial Market Supervisory Authority FINMA as a manager of collective investments Our mission is to provide excellent performance and service to our clients through low volatility, liquid and transparent absolute return investment strategiesSource: Arkos Capital, GAM as at 31 May 2012 2* The transaction is expected to close before the end of the second quarter 2012, subject to closure and regulatory approvals
  3. 3. Arkos’ investment philosophyOur edge lies in our ability to identify stocks that will surprise by exceeding or falling short of analysts’ expectations ● We believe that current stock prices reflect all available market information and this is also reflected in analysts’ consensus on earnings expectations ● Therefore, in order to make money we need to anticipate changes: We buy a stock if we believe that it will beat analysts’ expectations We sell a stock if we believe that it will miss analysts’ expectations 3
  4. 4. Changes in earnings expectationsA meaningful indicator of future equity prices 400.0 350.0 Stocks with earnings upgrades outperform the Cumulative Relative Performanc 300.0 underlying indices 250.0 200.0 150.0 Stocks with earnings 100.0 downgrades underperform the underlying indices 50.0 0.0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Long Short Note: The blue line shows the relative performance of a portfolio of stocks acquired on a monthly basis that in the previous 3 months have experienced the best positive revisions The orange line shows the relative performance of a portfolio of stocks acquired on a monthly basis that in the previous 3 months have experienced the worst negative revisionsSource: Bloomberg (Index: MSCI Europe), Log Scale 4
  5. 5. Developed Europe Long/Short EquityThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  6. 6. Talentum Activedge, Talentum Enhanced and World Invest Absolute ReturnKey characteristics Name Talentum Activedge Talentum Enhanced World Invest Absolute Return European equity long/short market European equity long/short market Strategy European equity long/short fund neutral fund neutral fund Same long and short positions (through swaps and single stock futures) as Double gross exposure version of Description Low vol, beta neutral, all market cap Flagship European Equity L/S Market Talentum Activedge Neutral Hedge Fund, Beta up to 0.5, all market cap Fund type Offshore Offshore UCITS Fund manager Gianmarco Mondani Gianmarco Mondani Gianmarco Mondani Inception date 23 Jul 2002 30 Nov 2004 4 Apr 2003 Typical number of positions 90-140 90-140 90-140 Target gross exposure 120-180% 240-360% 100-160% Monthly on 30 days notice Monthly on 30 days notice Dealing Daily No lock-up No lock-up 1.0% management fee 1.5% management fee 1.75% management fee Fees 20% performance fee on a high 20% performance fee on a high 15% performance fee on a high watermark basis watermark basis watermark basis Minimum investment EUR/USD 100,000 EUR/USD 100,000 EUR 5,000 ISIN (EUR/USD) KYG8668M1006/ KYG8668M1188 KYG8668P1037/ KYG8668P1110 LU0028583804Source: Arkos Capital 6
  7. 7. Talentum ActivedgeMonthly performance TALENTUM ACTIVEDGE – A EUR % return Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2012 -0.4 1.7 2.1 0.7 -0.1 4.1 2011 -3.1 -0.1 1.2 0.2 -0.2 2.2 0.1 -1.3 0.4 0.6 0.8 0.9 1.7 2010 0.8 1.4 1.9 0.2 -0.3 0.3 0.1 0.8 0.3 0.8 0.8 0.8 8.3 2009 1.5 1.2 -1.7 -4.2 0.2 0.6 -0.7 -0.0 0.9 0.5 1.0 0.5 -0.3 2008 0.3 1.6 0.5 1.9 0.5 2.2 -2.5 -1.1 -5.9 0.4 -0.2 0.2 -2.2 2007 1.7 0.0 0.5 0.9 0.9 1.2 0.8 -0.5 2.8 1.9 -0.6 1.3 11.2 2006 2.6 0.3 1.8 1.3 -0.9 -0.4 0.7 0.4 -0.6 0.9 0.8 1.3 8.6 2005 1.5 0.6 0.8 0.2 0.3 2.0 1.1 1.7 2.5 -1.8 0.6 0.6 10.6 2004 2.5 1.4 0.1 0.4 -0.1 -0.2 1.7 1.4 0.6 -0.1 1.6 1.3 11.1 2003 -0.6 2.5 -0.7 1.0 0.4 -0.8 0.4 0.4 0.8 0.8 0.0 0.3 4.6 2002 0.1 -0.3 1.2 -0.6 -0.2 0.4 0.7Past performance is not indicative of future performance. Performance is provided net of fees.Source: Arkos Capital 7
  8. 8. World Invest Absolute ReturnMonthly performance WORLD INVEST ABSOLUTE RETURN – C EUR % return Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2012 -0.5 2.4 2.5 0.9 -0.1 5.2 2011 -3.2 -0.1 1.4 0.2 -0.6 2.4 0.1 -1.3 0.4 0.3 1.1 1.4 2.0 2010 0.8 1.4 2.0 0.3 -0.5 0.6 -0.0 0.9 0.4 1.0 0.8 1.3 9.2 2009 0.8 1.1 -1.9 -2.6 0.1 -0.1 -0.4 0.8 1.1 -0.3 0.9 0.8 0.1 2008 -2.4 1.3 -1.3 2.8 -0.0 1.6 -3.7 -0.5 -6.4 -0.4 -0.9 -0.9 -10.7 2007 2.3 -0.4 0.7 1.1 1.8 0.3 0.2 -1.4 1.0 1.3 -2.9 0.3 3.6 2006 3.9 1.0 1.7 1.6 -2.3 -0.7 -0.3 0.3 0.7 1.5 1.6 1.3 11.2 2005 2.2 2.3 -0.2 -0.9 1.9 2.4 2.6 1.6 2.3 -4.6 2.0 1.5 13.6 2004 3.1 1.6 -1.0 1.1 -0.5 0.5 0.3 0.5 1.0 -0.4 2.4 2.6 12.0 2003 0.9 1.3 0.8 1.8 1.7 0.3 2.6 0.7 0.1 9.0Past performance is not indicative of future performance. Performance is provided net of fees.Source: Arkos Capital 8
  9. 9. Arkos’ investment processOverview Risk management Qualitative conditioning overlay 1 2 3 Idea generation Stock selection Portfolio construction and management Qualitative screening Fundamental analysis Pre-trade risk analysis Quantitative screening Sizing of positions Continuous assessment of portfolio robustness Investment guidelines and internal rules 9
  10. 10. Idea generationQuantitative screening Earnings Price revisions Valuation momentum Which stocks are candidates for Which stocks appear Which stocks have momentum long or short positions based to be relatively cheap for next year? on revisions? or expensive? Analyst Revision Model (ARM): Indicators are a blend of P/E, P/B, Price momentum is a percentile percentile ranking of stocks based dividend yield, P/CF, EV/Sales, ranking of stocks based on recent on changes in estimates EV/EBITDA (6 to 12 month) historical price performance ARM is highly predictive of relative price movements and is effective We buy on strength, we sell on across stocks in each capitalisation weakness category, investment style and market sector Revision components are: EPS, EBITDA, Revenue 10
  11. 11. Current environment ● Valuation – Developed markets are not cheap when measured on the average profits of the last ten years – But they are very cheap compared to bonds ● Market re-rating is normally associated with a fall in interest rates – This is unlikely given the current very low levels ● Earnings growth is slowing due to macro headwinds (austerity) – This will dent earnings growth, which has already started to disappoint ● Economic growth is slowing, so the focus will be micro ● The main trigger for share price movements will be at single stock level – Changes in earnings expectations will be a main determinant of future performance ● The stock market can be seen as a value stock with no catalyst – Catalysts will be individual (earnings revisions) – This is the best environment for our approach ● There will be frequent rallies and reversals, mostly driven by sentiment associated with the short term movements in the global economiesSource: Arkos Capital as at 31st May 2012 11
  12. 12. Arbitrage opportunities in Europe 1. Visibility and growth versus structural problems – Longs in leading growth companies with excellent cash flows and visibility of earnings will produce absolute returns – Due to weak markets last year, we are able to buy many such companies on cheap multiples (BIC, Nestle, DIA, Babcock, Bunzl, Ryanair, Easyjet, Aryzta, Nutreco, Orpea, Dufry, Croda, Viscofan; Rexam) – Many European companies have structural problems, independent of economic growth and trade on higher multiples (ACS, Legrand, Stora Enso, Ericsson, Panalpina, Salzgitter, Norsk Hydro, Carrefour, Neste Oil, PKN) 2. Resilient energy versus structural problems in utilities – Many energy capex-dependent companies will experience a boom in demand and trade on some 12 times earnings (Seadrill, PGS, Kvaerner) – Many European utilities will be plagued by government intervention and falling demand, and yet trade at a premium to the market (Verbund, Fortum, Veolia, Suez Environment)Source: Arkos Capital as at 31st May 2012 12The views are those of the manager at the time of publication and are subject to change.
  13. 13. Arbitrage opportunities in Europe (cont) 3. Long advertising agencies versus structural losers in media – Advertising agencies trade on 12 times earnings, don’t suffer from structural issues and will benefit from 2012’s “quadrennial” events (WPP, Aegis) – Pure media peers suffer from structural decline in viewership and trade at a premium (Sanoma, Mediaset, TF1, Schibsted) 4. Long growth banks versus struggling local banks with weak capital and high loan losses – Swedish Banks (Swedbank) trade on 10 times earnings, have stronger than expected loan growth opportunities and are cutting costs fast. Their capital position is strong – Some Spanish banks (Banco Popular, Caixa) will have to resort to dilutive capital increases and have not fully impaired their books for loan losses – Some Swiss Banks suffer structural problems and trade on similar multiples. 5. Long structural growth in technology vs disappointing growth in health technology – Long tech structural growth (ASML, ASMI, Austriamicrosystems, Utit4, Alten, Berdtrandt) lead to upgrades on cheap multiples. – Some healthcare equipment specialist companies still trade at high multiples despite lack of growth (Straumann, Gerreshiemer).Source: Arkos Capital as at 31st May 2012 13The views are those of the manager at the time of publication and are subject to change.
  14. 14. Outlook for Europe L/S ● In a market led by earnings growth (see 2004-mid 2008) a conservative approach based on earnings revisions can deliver consistent absolute returns ● In 2004 – mid 2008 our funds kept pace with rising stock markets despite not taking any market risk ● If anything market growth should be lower this time due to slowing macro indicators (earnings) ● We believe our funds can achieve better returns than the markets with no directional risk ● Over the last two years, in a period of low economic growth, the funds returned positive performance, despite falling markets, thanks to their focus on single stock differentiation. This is set to continue ● We reduced gross exposure in the short term in order to insulate the portfolio from the effects of a sentiment induced rally following a “European solution” ● This has allowed the funds to withstand the recent swings with very low volatility ● If we have a bounce in losing stocks due to sentiment, there will be no bounce in their underlying fundamentals, giving us an opportunity to increase the gross on our favourite short themesSource: Arkos Capital as at 31st May 2012 14The views are those of the manager at the time of publication and are subject to change.
  15. 15. Conclusions ● Our investment approach focuses on potential changes in earnings expectations ● The results across all our funds have shown that earnings revisions works through time ● Our edge comes from our ability to consistently generate alpha by identifying stocks that will surprise positively or negatively ● The current market environment is particularly favorable for our strategy, despite the macro head-winds, with stocks that positively surprise when reporting earnings rising and stocks that fall short of consensus earnings falling. ● Our investment discipline has enabled us to thrive and deliver positive performance to our clients against a market back-drop that has been bleak over the same 10 year period ● We offer our clients a high degree of transparency and liquidity ● We are committed to being an open and client-friendly firm whose interests are aligned with those of our clients 15
  16. 16. Developed EuropeThemes Sector – % breakdown Activedge Enhanced Absolute Return Banks -2.1 -4.3 -2.5 Basic Materials 0.0 0.1 0 Consumer Cyclicals 1.5 3.0 3.2 Consumer Non-Cyclicals 4.6 9.3 9.4 Diversified Financials & REITs -0.5 -1.0 -0.6 Energy 1.2 2.3 1.5 Health Care -2.5 -5.0 -1.8 Industrials -1.3 -2.6 -2.5 Insurance 3.6 7.1 4.3 Media 1.4 2.8 1.6 Cyclical Services 0.1 0.3 -0.3 Non-Cyclical Services 6.6 13.2 2.7 Technology 2.9 5.9 3.5 Telecommunication Services 0.2 0.4 0.2 Utilities -3.9 -7.8 -4.5 Long 52 105 62 Short -41 -81 -48 Net 12 24 14 Gross 93 186 111Source: Arkos Capital as at 31st May 2012. NOTE: Index positions broken down into individual sectors 16Allocations and holdings are subject to change.
  17. 17. AppendixThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  18. 18. Talentum Activedge - A EURPerformance from 23 Jul 2002 (inception) to 31 May 2012 Offshore Fund – Track record for illustrative purpose only Simple Ann. Ann. Perf. Perf. Std. 100 % % % Dev. Talentum Activedge 74.6 5.8 4.3 - A EUR 80 % FTSE Eurotop 100 49.7 4.2 16.3 Index in EUR 60 % Average EUR 1 24.2 2.2 0.4 Month Deposit Rate HFRI/HFRX Equity 40 % Hedge Index (GAM -8.2 -0.9 8.1 Hedged) in EUR 20 % Talentum Activedge - A EUR 0% FTSE Eurotop 100 Index in EUR Average EUR 1 Month Deposit Rate HFRI/HFRX Equity Hedge Index (GAM Hedged) in EUR 2003 2004 2005 2006 2007 2008 2009 2010 2011Past performance is not indicative of future performance. Performance is provided net of fees. Funds do not have the security of capital which is characteristic of a bankdeposit.Source: GAM, Thomson Reuters, Bloomberg 18
  19. 19. World Invest Absolute Return - C EURPerformance from 7 Apr 2003 (inception) to 31 May 2012 Simple Ann. Ann. Perf. Perf. Std. % % Dev. 100 % World Invest Absolute Return - C 67.3 5.8 5.5 EUR 80 % FTSE Eurotop 100 53.1 4.8 14.3 Index in EUR 60 % HFRX Equity Hedge (GAM hedged) in -5.3 -0.6 8.4 EUR 40 % 20 % 0% World Invest Absolute Return - C EUR FTSE Eurotop 100 Index in EUR HFRX Equity Hedge (GAM hedged) in EUR 2003 2004 2005 2006 2007 2008 2009 2010 2011Past performance is not indicative of future performance. Performance is provided net of fees.Source: GAM, Thomson Reuters 19Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details oftheir calculation are available on request.
  20. 20. Stock examplesWPP from 3 Jan 2006 to 1 Jun 2012 9 0.75 8 0.70 7 0.65 0.60 6 0.55 5 0.50 0.45 4 0.40 3 2006 2007 2008 2009 2010 2011 2012 BEst Standard EPS Adjusted + C A (RHS) Price (LHS)Past performance is not indicative of future performance.Source: Bloomberg 20
  21. 21. Stock examplesLong example - WPP ● Leading advertising agency ● Strong beneficiary of booming corporate cash flows – Particularly exposed to US corporates (45% of revenues) ● During our holding period, organic growth has consistently outstripped expectations – At Q1 2012 results, WPP raised guidance to above 4% growth after growing 4% in Q1 – Three quadrennial events should push growth higher in 2012 – We use 5% organic growth for 2012 ● According to our historic analysis of operating leverage, this should allow some 70bp margin increase ● Indeed management said their target of 50bp increase could well be exceeded ● We believe WPP can make a 50bp improvement with only 4% organic growth, in 2011 they had 110bp improvement with 5% organic growth ● We are 5% above consensus (and the stock still trades on only 10.9 times earnings) ● Strong balance sheet allows acquisitions, which will lead to further earnings revisions 21
  22. 22. Stock examplesPanalpina from 6 Nov 2007 to 1 Jun 2012 18 200 16 14 150 12 10 100 8 6 50 4 2008 2009 2010 2011 2012 BEst Standard EPS Adjusted + 2012* A (RHS) Price (LHS)Past performance is not indicative of future performance.Source: Bloomberg 22
  23. 23. Stock examplesShort example - Panalpina ● Leading air and sea forwarding agent ● After strong recovery in air traffic last year due to low global inventories, Panalpina is suffering declines in air freight volumes ● After improving gross profit margin coming out of loss making contracts, Panalpina has to accept lower than expected margins if it wants to grow as hoped by consensus ● Recent hikes in rates by shipping lines posts further risk for margins. ● Our EBIT forecast is 20% below consensus and it is based on an optimistically flat margin in sea and flat volumes in air despite Q1 decline ● Panalpina’s cash on the balance sheet is earmarked for legal provisions and will not find its way back to shareholders ● PE is 19x, still very expensive 23
  24. 24. Emerging Market Long/Short EquityThis document is confidential and intended solely for the use of the person to whom it is given or sentand may not be reproduced, copied or given, in whole or in part, to any other person.
  25. 25. Talentum Emerging Alpha and World Invest Absolute EmergingKey characteristics Name Talentum Emerging Alpha World Invest Absolute Emerging Emerging markets equity long/short fund Low volatility, emerging markets equity Description with a low beta style long/short fund with a low beta style Fund type Offshore UCITS Fund managers Enrico Camera and Iain Cartmill Enrico Camera and Iain Cartmill Inception date 1 Feb 2007 10 Jul 2009 Typical number of positions 50-80 50-80 Target gross exposure 150-210% 100-140% Monthly on 30 days notice Dealing Daily No lock-up 2% management fee 2% management fee Fees 20% performance fee on a high 20% performance fee on a high watermark basis watermark basis Minimum investment EUR/USD 100,000 EUR 5,000 ISIN (EUR/USD) KYG8669L1014/ KYG8669L1196 LU0435115307Source: Arkos Capital 25
  26. 26. Talentum Emerging Alpha and World Invest Absolute EmergingMonthly performance TALENTUM EMERGING ALPHA – A EUR % return Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2012 -1.6 3.0 4.2 3.9 -3.5 6.0 2011 -3.9 -0.3 0.6 1.5 0.9 -0.2 1.6 0.6 -0.5 -0.7 0.6 0.6* 0.7 2010 -2.4 -1.0 2.8 -0.7 -2.7 0.9 0.4 1.3 2.2 2.6 1.1 0.8 5.4 2009 1.4 -0.1 -1.3 0.4 1.9 1.1 2.1 2.5 3.7 0.2 1.0 2.7 16.8 2008 0.3 4.4 -0.7 2.3 6.2 2.3 -4.6 -2.2 -0.2 1.5 0.0 -0.3 8.7 2007 -0.8 1.1 1.3 0.4 0.4 -0.1 -2.3 2.8 2.7 -0.1 1.8 7.4 WORLD INVEST ABSOLUTE EMERGING – C EUR % return Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2012 -1.2 1.9 2.7 2.5 -2.5 3.5 2011 -4.0 -0.4 0.8 1.5 0.9 -0.3 1.5 0.5 -0.5 -0.7 0.4 0.6 0.2 2010 -1.4 -0.4 1.4 -0.6 -2.7 1.2 0.3 1.2 2.2 2.5 1.0 0.5 5.2 2009 0.3 2.1 2.2 2.4 -1.1 1.9 8.0Past performance is not indicative of future performance. Performance is provided net of fees.Source: Arkos Capital. * Raised gross exposure range to 1.5x original targets 26
  27. 27. World Invest Absolute EmergingPortfolio breakdowns as at 31 May 2012 Sector positions Long % Short % Net % Geographic exposure Long % Short % Net % Consumer Asia 0.9 -1.2 -0.3 9.3 -0.8 8.5 Discretionary Brazil 9.1 -6.0 3.1 Consumer Staples 10.6 -1.0 9.5 Middle East 4.3 0.0 4.3 W. Europe 4.0 -3.1 0.9 Energy 1.2 -3.3 -2.1 South Africa 10.9 -6.5 4.4 Financials 5.0 -9.3 -4.2 Mexico 5.0 -1.0 4.0 Health Care 1.7 -0.0 1.7 CIS 0.8 0.0 0.8 Colombia 2.6 0.0 2.6 Industrials 9.9 -3.6 6.3 Chile 2.2 -1.7 0.5 Information Panama 2.2 0.0 2.2 4.9 -3.8 1.1 Technology Israel 1.4 0.0 1.4 Materials 6.2 -4.4 1.8 Russia 1.2 -1.2 0.1 Telecommunication North America 1.5 0.0 1.5 1.3 -3.1 -1.9 Services Scandinavia 0.9 -1.3 -0.4 Utilities 3.6 -2.5 1.1 Turkey 3.7 -3.4 0.2 Grand Total 53.8 -31.9 21.9 Czech 0.6 0.0 0.6 Poland 2.3 -6.4 -4.1 Grand Total 53.8 -31.9 21.9Source: Arkos Capital 27Allocations and holdings are subject to change. Holdings breakdown shown without Bonds, Options, Sector look through for Index product.
  28. 28. Emerging markets themesOverview Longs Shorts • Retail plays with strong consumer offers (Shoprite, • Competitive telecom environments (Telkom SA, Mr Price) Telekom Polska) • Resilient consumer plays (Nokian Tyres, AVI) • Banks with weak balance sheets and slower growth rates (Santander Chile) • Cheap materials with production growth (Gazpromneft, Exxaro Resources) • Margin pressure in insurance sector (Sulamerica, Porto Seguro) • Telecoms with low competition (Etihad) • Materials with poor cost control (Anglo American • Growth stories at discount (Valid, Check Point Platinum, JSW) Software) • Financials with sound balance sheets and growth potential (Capitec, RMI Holdings) • Utilities with structural growth (Copasa, Aguas Andinas)Source: Arkos Capital as at 31st May 2012 28The views are those of the manager at the time of publication and are subject to change.
  29. 29. World Invest Absolute Emerging - C EURPerformance from 10 Jul 2009 (inception) to 31 May 2012 70 % Simple Ann. Ann. Perf. Perf. Std. 60 % % % Dev. World Invest Absolute Emerging - 17.9 5.9 5.5 50 % C EUR MSCI Emerging 40 % Markets Index (GAM 25.5 8.2 23.2 hedged) in EUR HFRX Equity Hedge 30 % (GAM hedged) in -5.6 -2.0 7.7 EUR 20 % 10 % World Invest Absolute Emerging - C EUR 0% MSCI Emerging Markets Index (GAM hedged) in EUR HFRX Equity Hedge (GAM hedged) in EUR 2009 2010 2011 2012Past performance is not indicative of future performance. Performance is provided net of fees.Source: GAM, MSCI 29Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details oftheir calculation are available on request.
  30. 30. World Invest Absolute Emerging - C EURAnnual returns from 10 Jul 2009 (inception) to 31 May 2012 34.3 30 % 20 % 17.3 10 % 8.0 5.2 3.5 0.2 0% -1.0 -10 % -20 % -19.6 World Invest Absolute Emerging - C EUR MSCI Emerging Markets Index (GAM hedged) in EUR 2009 2010 2011 2012 Part YTDPast performance is not indicative of future performance. Performance is provided net of fees.Source: GAM, MSCI 30Statistics herein based on currency hedged indices, identified by ‘(GAM hedged)’ in their title, have been calculated by GAM with the aim of valid comparison to our currency hedged products. Details oftheir calculation are available on request.
  31. 31. Stock selectionFundamental in-depth analysis P&L Cash Flow Balance Sheet Revenues: Ebitda – interest – tax – capex: can Debt levels: quantity by price by currency plus the company support its growth? what is appropriate? acquisitions minus disposals Working capital: Provisions: Gross margin: must grow no more than sales, can future cash costs measure of value added, mostly make a company bankrupt or reduce variable costs its competitiveness Goodwill: impairment test, can it cause equity Goodwill depreciation If negative: ratios to stretch? can the balance sheet take it? Who Operating margin: is paying for this? influenced by fixed costs, prices Interest costs: leverage can be good but it is a fixed cost Associates (a separate company) and minorities (one way to fool you) Dividends: are they sustainable? 31
  32. 32. Portfolio management Goal ● Maintain a consistently robust and liquid portfolio in accordance with the investment guidelines and internal rules for each fund Portfolio characteristics: ● Well-diversified ● Clear maximum exposure for each stock ● Exposure to market as per mandate with daily controls ● Investment in any single stock not exceeding 3 days’ trading volume ● No specific limits on country exposure (except for Emerging Markets products) ● No specific sector limits unless a particular sector exposure leads to an unwanted correlation to external macro factors ● No automatic lock-in of profits, no automatic stop-loss ● Dynamic stop-loss policy 32
  33. 33. Risk management Goal ● Manage risk proactively at each stage of the investment process (idea generation, portfolio construction, portfolio management) Structure ● Robust risk management framework built around and integrated with investment approach ● Set of risk management tools utilised by investment team as part of ex-ante analysis 33
  34. 34. Risk managementPre-trade risk controls Factors used to assess pre-trade single positions and level of portfolio risk: ● Correlation management to avoid unwanted bets (adjusted Beta and t-Stat) ● Stress test analysis ● Liquidity/volume ● Volatility ● Long, short, gross and net exposure ● Proprietary (style) indicator of short-term overbought or oversold stocks 34
  35. 35. Risk management function ● Risk manager has independent supervisory function and operates at arms’ length ● Monitors adherence to investment guidelines, internal investment rules, restrictions and risk limits and initiates appropriate corrective actions in case of any transgression ● In addition to the pre-trade risk analysis, the risk manager performs regular checks on: – Capacity limits – Sector and geographical exposure – Consistency between what quantitative data suggest and existing portfolio (comparison of portfolio longs and shorts versus what quantitative indicators tell us about each position) – Dynamic stop/loss analysis – Performance attribution 35
  36. 36. Risk managementOverbought style indicator 115 By plotting the alpha generated by the current portfolio (blue line) over the last 6 months and fitting the 2 110 standard deviation bands above and below (red lines) we are able to 105 gauge whether our style of investing could be overbought or oversold in the short term. This tool is used to 100 prompt the manager to examine the current portfolio structure and might lead to measures such as a 95 decrease/increase of our gross exposure. 90 TA LENTUM 85 1.96 Fitted -1.96 80 11 11 11 11 11 11 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 12 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 1. 1. 2. 2. 2. 2. 1. 1. 5. 5. 1. 1. 1. 2. 2. 2. 2. 3. 3. 3. 3. 4. 4. 4. 4. 4. 5. 5. .1 .1 .1 .1 .1 .1 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 .0 21 28 05 12 19 26 02 09 21 28 16 23 30 06 13 20 27 05 12 19 26 02 09 16 23 30 07 14Source: Arkos Capital 36
  37. 37. Risk managementCorrelation management factor corr beta t-stat EUR-USD X-RATE 0.129 0.023 0.834 EUR-CHF X-RATE -0.087 -0.097 -1.112 GBP-EUR X-RATE -0.088 -0.039 -1.016 GOLD SPOT $/OZ 0.075 0.005 0.344 DJ UBS INDUST METALS 0.124 0.003 0.291 FTSE EUROTOP 100 INDEX 0.146 0.000 0.000 CAC 40 INDEX 0.111 -0.003 -0.335 MILAN MIB40 INDEX 0.023 -0.010 -1.269 DAX INDEX 0.125 -0.002 -0.152 FTSE 100 INDEX 0.281 0.025 1.718 IBEX 35 INDEX -0.144 -0.029 -3.258 SWISS MARKET INDEX 0.182 0.012 0.640 NASDAQ 100 STOCK INDX 0.194 0.017 1.165 We want to ensure that the portfolio S&P 500 INDEX 0.173 0.012 0.719 BLP European Consumer Cyclical 0.266 0.016 1.568 performance only reflects calculated BLP European Consumer Non-Cyclical DJ EURO STOXX LARGE P = 0.367 0.083 0.063 -0.008 3.056 -0.694 bets. DJ EURO STOXX SMALL P = 0.117 -0.002 -0.211 DJ STOXX TMI VALUE P = 0.068 -0.011 -0.898 DJ = STXX TMI GRWTH P = 0.228 0.013 1.063 US 10Y BOND -0.032 0.020 0.376 S&P EUROPE 350 ENERGY IX 0.185 0.008 0.647 We use a proprietary risk S&P EU 350 CON STAPLE IX S&P EU 350 TELECM SV IDX 0.380 0.060 0.066 -0.012 3.367 -0.752 management tool that measures the S&P EU 350 CONS DISCT IX 0.271 0.018 1.636 current portfolio’s correlation to a S&P EU 350 UTILITIES IDX -0.051 -0.027 -2.087 S&P EU 350 MATERIALS IDX 0.176 0.005 0.475 wide variety of factors. S&P EU 350 FINANCIALS IX -0.015 -0.015 -1.773 S&P EU 350 HEALTHCARE IX 0.227 0.026 1.390 S&P EU 350 INFO TECH IDX 0.227 0.015 1.300 S&P EU 350 INDUST INDEX 0.202 0.008 0.756 CYC-NCYC 0.131 0.003 0.233 LARGE-SMALL -0.108 -0.051 -1.527 VALUE-GROWTH -0.394 -0.154 -5.376 EURO-BUND 0.057 0.058 1.550 VIX -0.219 -0.005 -1.695 VSTOXX -0.192 -0.003 -0.985 US BREAK EVEN INFL RATE 10YR 0.107 0.167 1.334 EUR-JPY X-RATE 0.180 0.030 1.331 JAPANESE JPY SPOT 0.106 0.028 0.894 RUSSELL 2000 0.145 0.005 0.490 WTI Crude Oil 0.205 0.016 1.464 DEFENSIVE vs AGGRESSIVE -0.093 -0.006 -0.248 EUR-SEK X-RATE -0.124 -0.036 -0.888 SWEDISH MARKET INDEX 0.225 0.011 1.116 MSCI Emerging Free 0.199 0.018 1.313 Dax-Ibex spread 0.406 0.072 5.314 SHANGHAI 0.106 0.016 1.149Source: Arkos Capital 37
  38. 38. Risk managementStress testing FROM TO EUROTOP 100 TALENTUM • In periods of market turbulence 05.12.2011 19.12.2011 -3.26% 0.85% (high volatility) beta becomes a 16.03.2012 18.05.2012 -12.71% 3.41% poor indicator of correlation 13.01.2012 01.06.2012 -5.85% 7.51% • We perform stress test analysis to FROM TO US 10Y BOND TALENTUM ensure that in such circumstances 05.12.2011 19.12.2011 1.32% 0.85% the current portfolio would not 16.03.2012 18.05.2012 3.69% 3.41% show significant unwanted 13.01.2012 01.06.2012 2.63% 7.51% correlation FROM TO EUR-USD X-RATE TALENTUM • We analyse how the current 05.12.2011 19.12.2011 -3.01% 0.85% portfolio would have performed in a 16.03.2012 18.05.2012 -3.00% 3.41% sample of periods of high volatility 13.01.2012 01.06.2012 -2.61% 7.51%Source: Arkos Capital 38
  39. 39. Arkos’ organisational structure Board of Directors Board of Directors Gianmarco Mondani (P) Gianmarco Mondani (P) Giulio Romani (VP) Giulio Romani (VP) Fabrizio Lauro (D) Fabrizio Lauro (D) Paolo Bertolini Paolo Bertolini External Auditor External Auditor Ernst & Young Ernst & Young General Management General Management Fabrizio Lauro (CEO) Fabrizio Lauro (CEO) Gianmarco Mondani (CIO) Gianmarco Mondani (CIO) Tristan Brenner (COO) Tristan Brenner (COO) Risk Management Risk Management Fabio Trancanelli Compliance Compliance Fabio Trancanelli Tristan Brenner Tristan Brenner General Assistant General Assistant Zuhal De Santis Zuhal De Santis Christian Carabelli Christian Carabelli Asset Management Asset Management Operations & Organisation Operations & Organisation Marketing & Relationship Management Gianmarco Mondani Gianmarco Mondani Tristan Brenner Marketing & Relationship Management Tristan Brenner Christina Howard Roberto Cantaluppi Roberto Cantaluppi Christina Howard Paolo Longinotti Eva Gianini Eva Gianini Paolo Longinotti Davide Marchesin Davide Marchesin Jonathan Stanford Jonathan Stanford Enrico Camera Enrico Camera Front Office Front Office Iain Cartmill Iain Cartmill Mirko Borghi / /Michael Tornese Mirko Borghi Michael Tornese Aldo Meroni Aldo Meroni Middle Office Middle Office Simone Vago Simone Vago Giancarlo Brunetti Giancarlo Brunetti Francesco Freggiaro Francesco Freggiaro Outsourced services (HR, IT, Accounting) Outsourced services (HR, IT, Accounting) 39
  40. 40. Arkos’ investment teamBiographies Gianmarco Mondani Roberto Cantaluppi Founding Partner and CIO of Arkos Capital S.A. Fund Joined Arkos Capital S.A. in 2007. Co-Fund Manager of manager of Talentum Activedge, Talentum Enhanced, Talentum Activedge, Talentum Enhanced, World Invest World Invest Absolute Return (all since inception). Absolute Return and of World Invest Absolute Financials. Previously co-fund manager of Talentum Activedge, From 1999 to 2007 he worked in various functions at Talentum Enhanced, World Invest Absolute Return at Allianz Asset Management and at RAS Asset Banca Arner, Lugano which he joined in 2002. Management SGR (a fully owned subsidiary of Allianz) in Milan and Munich. For three years he was the head of the From 1996 to 2002 Gianmarco was a portfolio manager at sector analysts team and he managed the RAS Research, Martin Currie IM in Edinburgh within the GBP 3 bn a global equity fund, and RAS Financial Services, a global European equity team. He was responsible for the Martin financial fund. Previously he was the head of global Currie European Unit Trust and Martin Currie European financial services team at Allianz Asset Management, after Investment Trust – both Europe-ex-UK funds. At Martin having spent one and a half year as buy-side analyst on Currie he also ran a pilot dummy portfolio in anticipation of European banks. the launch of Martin Currie’s first hedge fund. From 1997 to 1999 he worked as an analyst for San Paolo BA (cum laude) in Economics and Business Studies from IMI in Turin in the strategic planning office of the CEO. Genoa University (Italy), Master in Investment Analysis from Stirling University(UK). From 1996 to 1997 he worked as analyst of derivative products in FX and bonds at Mediosim – Milan. BA (cum laude) in Economics and a Master in Economics from Bocconi University in Milan and certificate of Italian Financial Analyst Association.Source: Arkos Capital 40
  41. 41. Arkos’ investment teamBiographies (cont) Paolo Longinotti Davide Marchesin Co-Fund manager of Talentum Activedge, Talentum Fund Manager of World Invest Absolute Financials. Joined Enhanced and World Invest Absolute Return. Arkos Capital S.A. in 2008. Joined Arkos Capital SA in 2011. From 2007 to 2008 Davide worked for MainFirst Bank in London (UK) as an institutional stockbroker, as a From 1998 to 2008 he worked as a Portfolio Manager and European equity institutional salesperson. Buy Side Analyst for different Italian investment houses, such as Eurizon Capital SGR, Eptafund SGR and From 2003 to 2007 he worked for RAS Asset Management PrimeGest (Generali Group). He was Co-Fund Manager of SGR (Allianz Global Investors) in Milan (Italy) as co- European funds over the entire period and responsible for portfolio manager of RAS Financial Services, a global the funds SanPaolo Salute&Ambiente, for the period financial fund. 2000-2002, and SanPaolo High Tech, in 2004-2008 timeframe. From 2000 to 2003 he worked for Arca Fondi SGR in Milan (Italy) as a buy-side analyst, responsible for From 2008 to 2010 he worked as a Co-Fund Manager on European financials. European hedge funds for SOPAF Capital Management SGR. BA (cum laude) in Economics from Università Cattolica del Sacro Cuore, Milan (Italy), holder of the Italian Financial From 2010 to 2011 he was a Sell Side Analyst at Fidentiis Advisor and the Chartered Financial Analyst designations. Equities in Milan. He holds a BA in Economics and Business Administration from Università Cattolica del Sacro Cuore in MilanSource: Arkos Capital 41
  42. 42. Arkos’ investment teamBiographies (cont) Enrico Camera Iain Cartmill Fund Manager. Transferred to Arkos Capital S.A. from Co-Fund Manager. Joined Arkos Capital S.A. in 2007. Co- Banca Arner which he had joined in 2006. Fund manager fund manager of Talentum Emerging Alpha and World of Talentum Emerging Alpha and World Invest Absolute Invest Absolute Emerging . Emerging. From 2000 to 2007 Iain was a Director at AIG Private From 2000 to 2006 Enrico worked for Aureo Gestioni in Bank in Zurich, where he worked in equity research and Milan as head of Global Emerging Markets Equities and portfolio management covering European and emerging as portfolio manager for the Aureo Mercati Emergenti markets stocks. fund. During this 6 year period the fund ranked third among Italian GEM mutual funds in the sector. Enrico was From 1997 to 1999 he worked for a number of investment also an active member of the management committee. banks (Fleming, Morgan Stanley and Deutsche Bank) in London as a Product Accountant. From 1999 to 2000 he worked for Epta Fund in Milan as part of the institutional client sales team. From 1993 to 1997 he worked as an Analyst for ANZ Banking Group in Brisbane (Australia) within the Treasury BA (cum laude) in Economics from Verona University and Finance departments. (Italy) and holder of the Chartered Financial Analyst designation. BA in Economics from Queensland University and Bachelor in Business (Honours) from Queensland University of Technology (Australia). Holder of the Chartered Financial Analyst designation.Source: Arkos Capital 42
  43. 43. Arkos’ investment teamBiographies (cont) Aldo Meroni Jonathan Stanford Financial Analyst. Joined the team in December 2011. Fund Manager. Joined Arkos Capital S.A. in 2007. Fund Analyst for the Talentum Emerging Alpha and World manager of World Invest Absolute Strategy. Invest Absolute Emerging funds. From 1997 to 2007 Jonathan worked for the investment During 2011 Aldo worked as a quantitative equity analyst banking division of UBS as Executive Director responsible at CFO Sim S.p.A., a family office based in Milan where for convertible bond sales for institutional clients in Italy, he created and developed a quantitative stock screening Spain, Greece and Switzerland. model. He has previous experience as a research analyst with Deutsche Bank, London (2008) and with SOPAF From 1994 to 1997 he worked at Banca Commerciale Capital Management, Milan (2007). Italiana (Suisse) as a portfolio manager and derivatives trader in Lugano and Zurich. Msc (cum laude) in Finance from the Bocconi University (Italy) and a Bsc (cum laude) in Finance from the same BA in International Management from Franklin College, university. Lugano (Switzerland) and MBA in International Management from Long Island University (USA).Source: Arkos Capital 43
  44. 44. Arkos’ investment teamBiographies (cont) Fabio Trancanelli (Risk Manager) Risk Manager. Joined Arkos Capital S.A. in December 2007. From May 2002 to November 2007 Fabio worked for Aureo Gestioni S.G.R. as head of quantitative analysis within the risk management department, responsible for the identification and development of portfolio performance analysis and market risk models and performance and risk decomposition and attribution procedures. He was jointly responsible for internal audit and portfolio alert reporting, and for the selection of the risk management software solution for the entire groups managed products (approximately 8bn Euro). BA (cum laude) in Statistical Science from Università la Sapienza in Rome and Masters Degree in Quantitative Finance and Insurance from Bocconi University in Milan.Source: Arkos Capital 44
  45. 45. ArkosAdditional fund information Developed Europe Prime Brokers/ Custodians Administrator Auditor Talentum Activedge EUR A Merrill Lynch, Morgan Stanley Citibank Europe Ernst & Young Talentum Enhanced EUR A Merrill Lynch, Morgan Stanley Citibank Europe Ernst & Young World Invest Absolute Return SICAV State Street Bank Luxembourg State Street Bank Luxembourg Ernst & Young Emerging Markets Talentum Emerging Alpha – A EUR Merrill Lynch, Morgan Stanley Citibank Europe Ernst & Young World Invest Absolute Emerging – C EUR State Street Bank Luxembourg State Street Bank Luxembourg Ernst & Young Financials World Invest Absolute Financials SICAV State Street Bank Luxembourg State Street Bank Luxembourg Ernst & Young Convertibles World Invest Absolute Strategy SICAV State Street Bank Luxembourg State Street Bank Luxembourg Ernst & YoungSource: Arkos Capital, GAM 45

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