The document analyzes the risk-adjusted performance of various asset classes over one, three, and five year periods. Fixed income assets generally had the best Sharpe ratios, a measure of risk-adjusted return, particularly over longer periods. While emerging market equities and developed market equities had comparatively high excess returns, their Sharpe ratios were towards the bottom, indicating their returns came with higher risk.

1. Economics Nobel Laureate William F. Sharpe developed the Sharpe ratio to measure risk-adjusted
investment return. The Sharpe ratio allows us to evaluate the performance of an asset in terms of
risk as well as excess return generated.
Risk-Adjusted Return: Quarterly Update
R Rf
Rf
2012 Q4

2. RISK ADJUSTED RETURNRISK ADJUSTED RETURNRISK ADJUSTED RETURN
ONE YEAR 30/12/2011 - 30/12/2012
Over this 1-year period, 7 of the top 8 best Sharpe ratios have been in fixed income, the exception
being Risk Parity. On an excess return basis, Emerging Market Equities performed 3rd and 5th best
respectively. 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 RETURN
THREE YEAR 30/12/2009 - 30/12/2012
Over this 3-year period, 8 of the top 9 best sharpe ratios have been in fixed income, the exception
being 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 the
bottom end of the chart.
*See appendix for a list of benchmarks & definitions.

4. RISK ADJUSTED RETURNRISK ADJUSTED RETURNRISK ADJUSTED RETURN
FIVE YEARS 30/12/2007 - 30/12/2012
Over this 5-year period, only 8 out of the 13 asset classes delivered positive excess returns, 7 of
which were in fixed income and the other was Risk Parity. Leveraged Loans US, Emerging Market
Equities, HF Macro, Developed Market Equities and Commodities saw returns below the risk free
rate over the period.
RISK ADJUSTED RETURNRISK ADJUSTED RETURNRISK ADJUSTED RETURN
*See appendix for a list of benchmarks & definitions.

5. Disclaimer
The 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 all
possible loss scenarios. There is no certainty that the parameters and assumptions used in this analysis can be duplicated with actual trades. Any
historical 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 sell
any 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 of
executed 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 of
the transactions described herein. This information is for discussion purposes and prior to undertaking any trade, you should also discuss with your
professional, tax, accounting and / or other relevant advisers how such particular trade(s) affect you. All analysis (whether in respect of tax, accounting, law
or of any other nature), should be treated as illustrative only and not relied upon as accurate
©Redington Limited 2012. All rights reserved.
Appendix
Freddie Ewer
Analyst: Investment Consulting
freddie.ewer@redington.co.uk
Jonathan Letham
Analyst: ALM & Investment Strategy
jonathan.letham@redington.co.uk
Here we look at the risk-adjusted performance across asset classes for the past one, three and five years. The calculations that underlie this analysis use
monthly 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 rate
which is calculated using the UK 3 Month LIBOR total return index. Volatility is the standard deviation of monthly excess returns. For all asset classes
apart from Investment Grade Credit and High Yield Bonds, total return indices are used to calculate the absolute returns. For Investment Grade and High
Yield, interest rate hedging is assumed and the excess return over swaps is used for the excess return.
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Monthly Data
Monthly Data1 Year
3 Year
5 Year Monthly Data