This document provides projections for public debt levels as a percentage of GDP for several European countries and the US through 2030. It finds that while Germany, the US and Switzerland should be able to maintain debt below concerning levels, other countries face significant challenges. Italy and Portugal are projected to have debt ratios over 200% of GDP within 15 years if current trends continue. France and Spain would also see rising debt, though not as extreme. The projections assume balanced budgets, but most countries currently run deficits. Structural reforms will be needed to reduce debt in troubled countries. Dividend payments from European companies are also discussed, which are expected to remain an important component of stock returns due to low interest rates and high corporate cash balances. However

1. info@ethenea.com www.ethenea.com
MARKET COMMENTARY
No. 10 / October 2014
This Market Commentary focuses on a slightly different topic
than usual, because this time we look at the long-term situ-ation
in the markets rather than the current one. We usually
take a look at the economic data and compare them with our
expectations and those of the market. This task is performed
by the surprise indicators (Graph 1), at least for the market.
While the markets are increasingly disappointed by the figures
from the Eurozone, data from the US is better than expected
(although to a steadily lesser degree). This largely coincides
with our own assessment of the situation on both sides of the
pond. Europe is struggling, probably in vain, against a renewed
recession. However, since even supposedly strong economies
like Germany are beginning to weaken, the likelihood of a
turnaround in European growth has to be considered fairly
remote.
The picture in the US, though, is very different (for now).
The economic data continue to surprise positively, especially
labour market data, which play an important role in the
interest rate policy of the US central bank. Interpreting the US
labour market data is a science in itself, as we have frequently
reported in the past. This seems to be the only reason why the
Fed (Federal Reserve) is continuing its loose monetary policy.
After all, it’s not as simple as a first look at the data would
suggest.
All in all, the markets are performing as we predicted in past
commentaries: Eurozone yields continue to fall, US yields are
largely stable and are not rising significantly. The equity mar-kets
seem to be disappointing, but only at first sight – when
you consider that the global economic data actually point
towards a weakening, which is not exactly a point in favour
of corporate earnings growth. In this environment equities
remain quite stable, which is undoubtedly due to the presumed
lack of alternatives to equity investments.
We therefore concern ourselves less with the current market,
and instead take a long view of the markets before exploring
the subject of dividends in greater detail in the equities part of
this Market Commentary.
The worst is yet to come. Definitely.
Many European countries are well
above the 60 percent debt limit.
Another negative development could
lead to market instability. Will
countries manage to reduce their debt
in the future?

2. No. 10 / October 2014
2
ETHENEA | Market Commentary
Graphs 3 to 11 show a very simple projection of future public
debt in relation to gross domestic product (GDP). Although
we may be oversimplifying here, we think this provides signifi-cant
insights.
In making these projections, we first of all assume that
government budgets are balanced. A closer look at the prima-ry
balances (Graph 2) nevertheless reveals that budgets are
anything but balanced even before debt servicing, with the
almost glorious exceptions of Germany and Italy. However,
the picture changes significantly when interest payments are
added. For Italy, this results in a budget deficit of 3 % of the
country’s GDP.
As stated, we nevertheless try to be optimistic about the future
and take the satisfying gift of balanced budgets as a given.
Moreover, we look at three scenarios: The main scenario in-volves
the continuation of the status quo, designated as ceteris
-100
-80
-60
-40
-20
0
20
40
60
80
100
10 11 12 13 14
Economic Surprise Index
Eurozone USA
Graph 1: Surprise indicators USA and Eurozone
Source: Bloomberg, ETHENEA, Citibank
-12
-10
-8
-6
-4
-2
0
2
4
6
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Government Primary Balance as % of GDP
Germany France Greece Spain
Portugal Italy USA
Graph 2: Primary balances of selected countries
Source: OECD, ETHENEA
paribus in the graphs. In the charts, we keep the currently
observed GDP growth rate and the real interest rate on debt
(10-year nominal interest rate minus the annual consumer
price inflation rate) constant. This scenario is seen in the
charts as a red line. Another variant of the projection involves
an increase in the real interest rate by 1 % (blue line). In the
last scenario, we used the data of the supposed model pupil
Germany for the projection, i.e. German real interest rates and
GDP growth rates (green line).
The projections for Germany, the USA and Switzerland allow
the viewer to look calmly to the future. Even ceteris paribus
Germany will reach the 60 % Maastricht limit again in 23 years.
If the European Central Bank (ECB) succeeds with its policy
of increasing inflation while simultaneously maintaining low
nominal interest rates, this 60 % level could even be reached
earlier. The USA and Switzerland, where the situation is com-parable,
also seem likely to avoid debt problems.
0
10
20
30
40
50
60
70
80
90
Debt/GDP
past ceteris paribus
real yield -0.86 real yield 1.14
Germany
Starting level 78.40
Real Annual Growth 1.2
10yr 0.944
CPI 0.8
Graph 3: Projection Germany
Source: Bloomberg, ETHENEA
0
10
20
30
40
50
60
70
80
Debt/GDP
past ceteris paribus
German status quo real rate 1.80
USA
Starting level 71.80
Real Annual Growth 2.6
10yr 2.5
CPI 1.7
Graph 4: Projection USA
Source: Bloomberg, ETHENEA

3. No. 10 / October 2014
3
ETHENEA | Market Commentary
0
100
200
300
400
500
600
Debt/GDP
past
ceteris paribus
German status quo
real rate 3.40
Italy
Starting level 132.60
Real Annual Growth - 0.2
10yr 2.3
CPI - 0.1
Graph 6: Projection Italy
Source: Bloomberg, ETHENEA
0
10
20
30
40
50
60
70
Debt/GDP
past
ceteris paribus
German status quo
real rate 1.35
Switzerland
Starting level 33.80
Real Annual Growth 1.4
10yr 0.45
CPI 0.1
Graph 5: Projection Switzerland
Source: Bloomberg, ETHENEA
0
50
100
150
200
250
Debt/GDP
past
ceteris paribus
German status quo
Starting level 93.90
Re al Annual Growth 1.2
10yr 2.08
CPI - 0.2
Spain
real rate 3.28
Graph 7: Projection Spain
Source: Bloomberg, ETHENEA
0
20
40
60
80
100
120
140
160
180
200
Debt/GDP
past
ceteris paribus
German status quo
real rate 1.88
France
Starting level 93.50
Real Annual Growth 0.1
10yr 1.28
CPI 0.4
Graph 9: Projection France
Source: Bloomberg, ETHENEA
0
100
200
300
400
500
600
Debt/GDP
past
ceteris paribus
German status quo
real rate 4.46
Portugal
Starting level 129.00
Real Annual Growth 0.9
10yr 3.06
CPI -0.4
Graph 8: Projection Portugal
Source: Bloomberg, ETHENEA
0
20
40
60
80
100
120
140
Debt/GDP
past
ceteris paribus
German status quo
real rate 2.21
Ireland
Starting level 123.70
Real Annual Growth 7.7
10yr 1.61
CPI 0.4
Graph 10: Projection Ireland
Source: Bloomberg, ETHENEA

4. No. 10 / October 2014
4
ETHENEA | Market Commentary
The picture for the countries that triggered the euro debt crisis
looks a bit different, however: Ireland is recovering and its
upgraded credit rating appears to be justified. Despite its high
debt level of 123 %, Ireland will be able to grow out of its debt
and reach the 60 % threshold in just 13 years. The picture is less
rosy for Spain, Portugal and Italy. Of these three candidates,
Spain appears to be the country most likely to be in a position
to save itself. Slightly more growth and slightly lower real
interest rates at the current German level would put the 60 %
threshold in sight in 40 years. Italy and Portugal, on the other
hand, will have a debt ratio of over 200 % of GDP in fewer
than 15 years if they maintain their current course. France,
a formerly stable, core European country, is now weakening.
Even our calculation’s assumption of a balanced budget seems
extremely hypothetical given the current level of -4.3 %.
A continuation of the current rate would also lead to an
increase in debt to levels that would be difficult to correct. If
France could commit itself to taking on a bit more of Schröder’s
Agenda 2010 in order to increase its competitiveness, France
might lose some of its charm, but at least it would be in a
position to reduce its debt. Future generations in France would
certainly prefer that to having to pay the excessive debts of
their grandparents. Finally, we should turn to Greece. Despite
(partial) debt restructuring in 2012 the country has never been
in a worse position. Even in the unlikely event (or under the
heroic assumption) that Greece could reduce its budget deficit
from -14.3 % to zero, the debt level would be at over 200 % in
three years and over 300 % in nine years.
Given the generally miserable debt situation, even the greatest
optimists are likely to doubt the long-term stability of several
European countries. Only the credibility of the ECB has thus
far prevented a renewed flare-up of the euro debt crisis. We
would do well not to simply accept the current situation as it
is. On the contrary, these countries (see above) should do their
utmost to make structural reforms on their own, because the
risk of a loss of market confidence is very real. If this happened,
debt restructuring would be inevitable in the form of a sover-eign
default, with the consequent loss of assets by residents
of the countries. At this point, PR agencies are needed to sell
these undeniably necessary but unpopular measures to voters.
So far these reforms have been thwarted by populist (and often
rightwing) parties. There is an urgent need for education in
this area.
There is not a lot of time, but there may be enough. Other-wise
the worst is yet to come, in the form of unsustainable
instability caused by the huge debts of the countries involved.
Definitely.
0
500
1000
1500
2000
2500
3000
3500
4000
Debt/GDP
past
ceteris paribus
German status quo
real rate 7.51
Greece
Starting level 175.10
Real Annual Growth - 0.3
10yr 6.21
CPI - 0.3
Graph 11: Projection Greece
Source: Bloomberg, ETHENEA

5. No. 10 / October 2014
5
ETHENEA | Market Commentary
0
2
4
6
8
10
12
14
16
18
20
84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Index
European Equities, Price Index
European Equities, Total Return Index
Graph 12: Price index and total return index
Source: Bloomberg, ETHENEA
0
1
2
3
4
5
6
11 12 13 14
in %
Stoxx 600 Dividend Yield
10 Year German Government Bond Yield
Graph 13: Dividend yield in comparison with Bund yield
Source: Bloomberg, ETHENEA
– the highest level in the last 15 years. With the banking
system continuing to stabilise, we think that companies will
reduce these liquid assets and dividends are an excellent
way to do so.
• No investment opportunities: Due to weak economic
growth, organic growth opportunities in Europe are limited.
Investment in new machinery and buildings only makes
sense if an economic upturn is expected in the next few
months. But we are far from such a scenario, as the falling
leading indicators of recent weeks show.
• Pressure on the part of investors: Investors are increasing
the pressure on companies to return unneeded cash to
shareholders instead of investing in expensive acquisitions.
Unfortunately, history has shown that, by the end of a stock
market cycle, expensive acquisitions only rarely make a
positive contribution to the acquiring company’s value.
• Volatility at a low level: Volatility in equity markets has
declined significantly in recent months, which makes divi-dend
stocks all the more attractive compared with bonds.
For example, the volatility of European stocks has fallen to
17, compared with an average of around 25 for the last five
years. The volatility levels of equities and bonds continue
to converge.
Dividend stocks appear even more attractive if we assume
that interest rates in Europe will remain at their low level for
some time to come. Does this mean we should buy any stock
with a high dividend yield? At first glance, this question can
be answered with a clear yes. Dividend yields of more than
6 % in telecommunications or 5.7 % in the oil sector seem
attractive, as Graph 14 shows. However, we urge caution:
As so often in the capital markets, the truth is slightly more
complicated.
Now, as promised, some brief comments concerning the equity
markets.
If dividends are good, is everything really fine?
The fourth quarter is already here; the year is drawing to a close.
Since it is well known that cash is king and the bond market is
currently offering little in the way of interest payments, we take
a look at corporate dividend payments in 2015. We assume that
European companies will be paying out more than EUR 300
billion to investors next year.
Dividend payments are pushing indices up – if dividends are
good, everything is fine is not only an old well-known stock
market wisdom, but also hits the nail right on the head. Since
1985, reinvested dividends have been responsible for over 60 %
of shareholder profits (difference between price index and total
return index, Graph 12). The rest comes from earnings growth
and expansion of the P/E (price-earnings ratio).
The central banks have wiped out interest. In the low interest
rate environment caused by the central banks, dividends have
become even more attractive and for many investors have taken
the place of the interest payments made by bond markets in
previous years. While the expected dividend yield on the Stoxx
600 is still 3.5 % for 2014, interest rates on 10-year German
government bonds have fallen below 1 % at times (Graph 13).
For the following reasons, we are convinced that distributions
to shareholders will continue to grow steadily in the coming
years:
• High cash balances: Since the financial crisis, massive
cash balances have been built up again and the liquidity
for increased distributions is available. At the end of 2013,
European companies held over 10 % of their assets in cash

6. No. 10 / October 2014
6
ETHENEA | Market Commentary
Attractive yields of over 5 % are not always covered by the
expected earnings. The telecoms sector is already distributing
higher dividends than it is generating in income. In addi-tion,
telecoms and utilities companies have to make heavy
investments, which could bring the generous dividends under
pressure. Investments in the oil and gas sector have been
reduced, providing a firm footing for dividends; however, a
sharp drop in the price of oil could put a spanner in the works
for investors. On the other hand, insurers are distributing
less than 50 % of their profits, although the dividend yield is
still over 5.5 %.
Also worth bearing in mind when it comes to dividend stocks:
Look before you leap.
5.0%
5.2%
5.4%
5.6%
5.8%
6.0%
6.2%
0%
20%
40%
60%
80%
100%
120%
Telecoms Oil & Gas Utilities Insurance
Payout ratio 2015e, LHS Dividend yield 2015e, RHS
Graph 14: Distribution ratios and dividend yields
Source: Barclays

7. No. 10 / October 2014
7
ETHENEA | Market Commentary
Positioning of the Ethna-AKTIV E
With no further deterioration in the geopolitical situation, we
used the higher market volatility to expand our equity exposure
by just under 9 % to 28.4 % at month-end. The markets should
receive particular support from further easing steps by the ECB
based on current macroeconomic data. At sector level we
therefore focused on the banking sector, as it should be the
biggest beneficiary of additional measures. We also increased
positions in the telecommunications sector. Further consolida-tion
and takeover rumours will have a supportive effect on
prices, particularly in the USA. Weak global demand and fur-ther
growth in US production put the oil price under pressure
last month. Consequently, we further reduced exposure in the
oil sector. The stable pharmaceutical sector remains a core
investment and was further expanded. We like the sector’s
combination of solid business models, relatively attractive
valuations and potential for further acquisitions.
The continued increase in policy divergence between the Fed
and the ECB confirms our opinion regarding a further appre-ciation
of the USD against the EUR. Therefore, we have not
changed our exposure, although the corresponding gains in-creased
the weighting to 25.1 % at month-end. In order not to
increase the impact of currency volatility on the overall port-folio,
we further reduced the AUD portfolio and realised gains
on the foreign exchange and bond side.
The average rating of the fund remained unchanged between
A and A+, while the bond weighting was reduced by 2.5 %
month-on-month. In particular, non-investment-grade secu-rities
were closed at a profit in order to keep the overall vola-tility
low at a higher equity exposure. We used Treasury futures
to reduce the modified duration slightly to 4.12 at month-end.
However, this was only for tactical reasons – we are maintaining
our macro picture and expect interest rates to remain low for
an extended period both in Europe and in the USA.
30.5
0.6
4.1
10.3
12.4
2.3
29.6
0.0
9.6 0.7
AAA
AA
A
BBB
NON IG
Not rated
Equities
Tactical reserve*
Cash
Others
% of Total NAV
Ethna-AKTIV E
Source: ETHENEA
Graph 15: Breakdown of the Ethna-AKTIV E portfolio by issuer rating
Ethna-AKTIV E
% of Total NAV
30.5
0.6
4.1
10.3
AAA
AA
A
BBB
NON IG
Not rated
Equities
Tactical reserve*
Cash
Others
% of Total NAV
Ethna-AKTIV E
* for potential direct investments
and derivatives in equities
69.7
0.1
1.0
25.1
0.0
3.6
0.4
42.1
5.3
1.0
44.5
3.1
3.6
0.4
EUR
CHF
AUD
USD
GBP
NOK
SEK Net Gross
Source: ETHENEA
Ethna-AKTIV E
% of Total NAV
Graph 16: Breakdown of the Ethna-AKTIV E portfolio by currency

8. No. 10 / October 2014
8
ETHENEA | Market Commentary
Graph 17: Development of the various market trends, compared with the previous month and the current year
Currency
TW € € $ € CHF € £ € JPY € AUD € NOK € CAD € TRY € CNH
Last 92.81 1.2676 1.20807 0.78503 137.2 1.44081 8.1671 1.4131 2.8801 7.807
-1m -1.3 % -3.6 % 0.2 % -1.0 % 0.3 % 2.4 % 0.3 % -1.0 % 1.5 % -3.4 %
ytd -5.0 % -8.1 % -1.4 % -5.7 % -5.5 % -6.7 % -2.3 % -3.6 % -2.9 % -6.5 %
German Gvmt ITRAXX 5y
2y 5y 10y 10/2y Europe Xover SenFin SubFin
Last -0.072 0.145 0.902 97 65 263 64 93
-1m -4 -3 1 5 5 22 3 10
ytd -29 -78 -103 -74 -5 -23 -23 -35
Equities
DAX Dow EuroStx CAC40 FTSE Nikkei Shanghai
Last 9,195.68 16,801.05 3,106.42 4,242.67 6,446.39 15,661.99 2,363.87
-1m -2.9 % -1.7 % -2.1 % -3.2 % -5.5 % 1.5 % 6.6 %
ytd -3.7 % 1.4 % -0.1 % -1.2 % -4.5 % -3.9 % 11.7 %
DAX P/E Dow P/E EuroStx P/E CAC40 P/E FTSE P/E Nikkei P/E Shanghai P/E
Last 12.8 14.7 14.1 14.6 13.3 17.5 9.4
-1m -4.5 % -2.7 % -2.1 % -3.5 % -5.9 % 1.0 % 6.7 %
ytd -9.2 % -5.5 % -3.3 % -6.6 % -5.3 % -17.0 % 1.4 %
Graph 18: Figures of the Ethna-AKTIV E at the end of the month
Date Fund Yield p. a. Rating is
between
Mod.
Duration
Current yield
p. a.
Mod. Duration
- bonds only-
30/09/2014 Ethna-AKTIV E 3.09 % A A+ 4.12 3.36 % 4.84
Yield pick-up to German 10y Gvmt
USA UK Japan France Austria Holland Italy Spain Portugal Greece Ireland
Last 152 142 -38 35 21 14 142 121 217 557 73
-1m 145 148 -39 36 24 17 155 134 233 493 89
ytd 110 109 -119 63 34 31 220 222 420 649 158

9. No. 10 / October 2014
9
ETHENEA | Market Commentary
34.3
20.7
6.0 5.5 4.8
3.6 2.9 2.1 2.1 1.8
0.8 0.7 0.6
3.9
0
5
10
15
20
25
30
35
Graph 19: Breakdown of the Ethna-AKTIV E portfolio by origin
Source: ETHENEA
Ethna-AKTIV E
% of Total NAV * Including 12 other countries
Bonds Equities
26.7
6.8 6.4 6.0
4.9 4.8 4.2 3.5 3.2 3.0 2.6 2.3 1.7 1.5 1.1 1.1 1.0 1.0 0.9 0.9 0.8 0.8 0.6 0.6 0.5
2.8
0
5
10
15
20
25
Graph 20: Breakdown of the Ethna-AKTIV E portfolio by issuer sector
Source: ETHENEA
Ethna-AKTIV E
% of Total NAV * Including 12 other sectors
Bonds Equities

10. info@ethenea.com www.ethenea.com
NB:
An investment in investment funds, as with all securities and comparable financial assets, carries the risk of capital or currency losses. Consequently,
the unit price and the yield are variable and cannot be guaranteed. The costs of a fund investment have an effect on the actual profit. No guarantee can
be given that the investment objectives will be achieved. The statutory sales documents form the sole legal basis for a purchase of units. All information
published here constitutes a product description only. It does not constitute investment advice, an offer to enter into an agreement for the provision of
advice or information or a solicitation of an offer to buy or sell securities. Contents have been carefully researched, compiled and checked. No guarantee
can be given for correctness, completeness or accuracy. Munsbach, 30/09/2014.
Portfolio Management:
Guido Barthels (author)
Luca Pesarini
Arnoldo Valsangiacomo
Please do not hesitate to contact us if you have any questions or suggestions.
ETHENEA Independent Investors S.A.
9a, Rue Gabriel Lippmann · 5365 Munsbach · Luxembourg
Phone +352 276 921 10 · Fax +352 276 921 99
info@ethenea.com · www.ethenea.com