TEXPERS 2016 Annual Conference Currency Myths and Realities April - - PDF document

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TEXPERS 2016 Annual Conference Currency Myths and Realities April - - PDF document

3/29/2016 TEXPERS 2016 Annual Conference Currency Myths and Realities April 4, 2016 I MPORTANT D ISCLOSURES This presentation document is intended for educational purposes only and is not intended to replace independent professional judgment.


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TEXPERS 2016 Annual Conference Currency Myths and Realities

April 4, 2016

2

This presentation document is intended for educational purposes only and is not intended to replace independent professional judgment. This document is for personal, illustrative use by the presenter only and is not intended for distribution. Millennium Global and the presenter of this document do not intend it to be distributed or delivered to anyone. Any opinions expressed herein are the author’s current opinions as of 4th of March 2016 only and are subject to change without notice or issuance of an update or follow-up. The opinions and views contained herein do not necessarily represent the opinions of Millennium Global Investments Limited or the funds and accounts it manages or any of its products or services. None of Millennium Global, its employees, the author and/or the presenter has any obligation to provide recipients hereof with updates or changes to any of the information contained in this presentation. This presentation does not purport to contain all the information that a prospective client and/or their consultant/manager would require in connection with their investment requirements, their services, products or their business in general. This presentation and the information contained herein are not intended to provide and should not be relied upon as a personal recommendation. This presentation does not take into account the particular business, corporate or investment objectives, circumstances, situations, or needs of individual clients and/or their consultants or managers. You should consult your own advisors and obtain any professional advice you deem necessary in relation to the matters discussed in this presentation. It is the responsibility of persons to whom this document is provided to inform themselves of and observe all applicable laws and regulations of any relevant jurisdiction, to the extent that such laws may relate to the matters discussed in this presentation. Any graphs, diagrams or statistics used in this presentation are used for educational, illustrative and comparative purposes only. Any models used have been provided for educational, illustrative and discussion purposes only. Any statistics with respect to the various indices are used for educational, illustrative and comparative purposes only. They are not to be understood to mean that there is any correlation between any Millennium products and any such indices. Moreover, it should not be assumed that any views and opinions expressed in this presentation will be applied to any Millennium funds, products or services. Although the information, views and opinions contained in this presentation have been obtained or derived from various sources which we believe to be reliable, neither the author/presenter nor Millennium makes any representation as to the reliability, accuracy or completeness of the information. Neither Millennium Global nor the author/presenter accept any responsibility for any error or

  • mission in this presentation nor do we accept liability for any loss arising from the use or application of the information contained in this presentation. Certain accounting assumptions may have

been made and some estimated values may have been used in compiling the information in this document, which reasonable people may disagree with. PORTIONS OF THIS PRESENTATION MAY CONTAIN REFERENCE TO FORWARD-LOOKING STATEMENTS, INCLUDING CERTAIN INTENTIONS, EXPECTATIONS, FUTURE PLANS, STRATEGY AND ECONOMIC PROSPECTS, WHICH MAY BE BASED ON CERTAIN ASSUMPTIONS, WHICH MAY NOT BE MET OR IN RESPECT OF WHICH VIEWS MAY DIFFER AND WHICH MAY BE AFFECTED BY KNOWN, UNKNOWN AND FUTURE RISKS. IT SHOULD BE NOTED THAT DUE TO VARIOUS UNCERTAINTIES AND ACTUAL EVENTS, THE ACTUAL PERFORMANCE OF THE ECONOMY MAY DIFFER MATERIALLY FROM THOSE REFLECTED OR CONTEMPLATED IN SUCH FORWARD-LOOKING STATEMENTS. The information herein is strictly confidential and distribution of this document or the information contained herein to any person and any reproduction or publication of this document, in whole or in part, or the disclosure of any of the contents, without the prior written consent of Millennium Global in each such instance is unauthorised and prohibited. The distribution of this presentation document may be specifically restricted by law in certain jurisdictions. Recipients and any other persons who come into possession of this presentation must therefore inform themselves about, and

  • bserve any such restrictions.

Attendees understand, agree and acknowledge that: (i) this document is not intended to be distributed, and if distributed inadvertently, it will be returned to Millennium Global as soon as possible; (ii) the recipient will not copy, fax, reproduce, divulge, or distribute any of the information contained herein, in whole or in part, without the express written consent of Millennium Global; (iii) all of the information herein will be treated as confidential material and treated with no less care than that afforded to the recipient’s (attendee’s) own confidential material. This presentation is directed exclusively at persons who are professional clients as defined by the rules of the Financial Conduct Authority (“FCA”) or are otherwise eligible under these rules. Millennium Global Investments Limited, an English company, is the investment manager of the Millennium Global Currency Products and is authorised and regulated by the Financial Conduct Authority (“FCA”) and registered as an investment adviser with the Securities and Exchange Commission (“SEC”). Millennium Global for and on behalf of its clients invests in and actively engages in transactions in instruments with significant risk characteristics. Registration with the SEC does not imply a certain level of skill or training. URN: 101094

Millennium Global Investments Ltd

IMPORTANT DISCLOSURES

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This information does not constitute an offer to buy or a solicitation of an offer to sell and does not constitute an offer or solicitation in any jurisdiction in which such a solicitation is unlawful or to any person to whom it is unlawful. We kindly draw your attention to the Important Disclosures on page 2 3 Millennium Global Investments Ltd

CURRENCIES: LARGE AND LIQUID MARKET

  • Global OTC market

– Large banks are main market-makers – London and NY are dominant markets

  • Easily accessible
  • Low transaction costs
  • Liquid financial market

500 1000 1500 2000 2500 3000 3500 4000 Oct-05 Oct-07 Oct-09 Oct-11 Oct-13 Oct-15 In $ billions

Currency Market Average Daily Volume (2005 – 2015)

New York Fed Avg Daily Volume BOE UK FX Avg Daily Volume

Source: Millennium Global, Bloomberg, October 2015. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2. 4 Millennium Global Investments Ltd

CURRENCIES: DOLLAR-CENTRIC

0.1% 0.1% 0.1% 0.3% 0.3% 0.3% 0.4% 0.5% 0.5% 0.5% 0.5% 0.5% 0.6% 0.7% 0.8% 1.0% 1.0% 1.1% 1.2% 1.2% 1.3% 1.5% 1.5% 1.6% 1.7% 1.8% 2.1% 2.6% 3.6% 4.7% 4.8% 6.6% 11.2% 13.5% 29.8%

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

GBP/CANADIAN DOLLAR GBP/AUSTRALIAN DOLLAR GBP/SWISS FRANC GBP/OTHER EUR/CANADIAN DOLLAR EUR/POLISH ZLOTY EUR/AUSTRALIAN DOLLAR USD/INDIAN RUPEE USD/POLISH ZLOTY USD/BRAZILIAN REAL EUR/NORWEGIAN KRONE EUR/SWEDISH KRONA USD/SINGAPORE DOLLAR GBP/JAPANESE YEN USD/KOREAN WON EUR/OTHER USD/NORWEGIAN KRONE EUR/SWISS FRANC USD/MEXICAN PESO USD/SOUTH AFRICAN RAND USD/SWEDISH KRONA EUR/JAPANESE YEN USD/NEW ZEALAND DOLLAR USD/RUBLE USD/POLISH ZLOTY OTHER CROSSES USD/CHINESE RENMINBI EUR/POUND STERLING USD/CANADIAN DOLLAR USD/OTHER USD/SWISS FRANC USD/AUSTRALIAN DOLLAR USD/POUND STERLING USD/JAPANESE YEN USD/EURO

LONDON: AVERAGE DAILY TRADING VOLUME BY CURRENCY (OCT. 2015)

Source: Bank of England, Semi-Annual FX Turnover Survey, October 2015. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2. 5 Millennium Global Investments Ltd

CURRENCIES: SUPPLY AND DEMAND DRIVERS

  • Macroeconomic fundamentals

‒ Economic growth ‒ Inflation ‒ Terms of trade ‒ External balances ‒ Monetary policy ‒ Fiscal policy ‒ Interest rates ‒ Etc.

  • Diverse set of market participants

‒ Objectives ‒ Risk preferences ‒ Time horizons

  • 8
  • 6
  • 4
  • 2

2 4 6 2000 2002 2003 2005 2006 2008 2009 2011 2012 2014

Eurozone: Basic Balance of Payments

Current account FDI Portfolio investment BBoP Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2. Millennium Global Investments Ltd

CURRENCIES: LONG-TERM FUNDAMENTAL TRENDS

6

Asia Currency Crisis (1997) Clinton Elected (1993) First Gulf War (1991) Second Gulf War (2003) Fed Launches QE2 (2010)

USD Trade Weighted Index 1980 - 2016

Source: JP Morgan and Bloomberg, February 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2. 60 70 80 90 100 110 120 130 140 150 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

Maastricht Treaty (1992) US recessions Tech Bubble Burst & 9/11 Attack (2000/01) Plaza Accord (1985) Euro enters in circulation and peak of the broad USD index (2002) Collapse of Oil Prices Fed Ends QE (2014) Soviet Union dissolved (1991) WTI Peaks at $145 Global Financial Crisis Lehman Defaults (2008) Russia Defaults LTCM Defaults (1998) Euro launched (1999) Blair re-elected (2001) Greenspan Fed Chairman (1987) George H.W. Bush President (1989) US House Prices Peak Record US CA Deficit (6%) Bernanke Fed Chairman (2006) Obama President Fed Launches QE1 Euro Crisis Begins Record US Fiscal Deficit (2009) Taper Tantrum (2013) Fed Launches QE3 (2012) Historic Fed Funds Peak 20%

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

CURRENCIES: VOLATILITY AROUND TRENDS

7 Millennium Global Investments Ltd 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 14.0% 60 70 80 90 100 110 120 130 140 150 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16

USTW$ Index 12-Month Rolling Daily Volatility Annualised (RHS)

USD Trade Weighted Index Volatility: 1980 - 2016

Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

CURRENCIES: MONTHLY VOLATILITY

100 200 300 400 500 600

  • 15%
  • 12%
  • 9%
  • 6%
  • 3%

0% 3% 6% 9% 12% 15%

G-10 Currencies: Distribution of Monthly Returns (1980 – 2016)

EURUSD JPYUSD GBPUSD CHFUSD CADUSD AUDUSD NZDUSD SEKUSD NOKUSD

8 Millennium Global Investments Ltd

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2. 9 Millennium Global Investments Ltd

CURRENCIES: MEDIUM-TERM FUNDAMENTAL TRENDS AND VOLATILITY

Euro Spot Level: March 2013 – March 2016

Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2. 10 Millennium Global Investments Ltd

CURRENCIES: SHORT-TERM FUNDAMENTAL TRENDS AND VOLATILITY

Euro Spot Level vs. Historic Volatility (1 Month)

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2. 11 Millennium Global Investments Ltd

GLOBAL PORTFOLIOS: REALLY TWO PORTFOLIOS

0.3% 0.2% 0.5% 0.2% 1.1% 0.2% 0.2% 0.4% 0.8% 0.4% 1.1% 0.9% 3.5% 0.9% 2.6% 1.6% 3.3% 3.1% 7.5% 6.0% 0.0% 8.6% 8.7% 16.6% 11.4% 21.2% 58.9% 39.5% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0%

MSCI World Barclays Global Aggregate US Dollar Euro Japanese Yen Other Pound Sterling Canadian Dollar Australian Dollar Swiss Franc Swedish Krona Danish Krone Norwegian Krone Hong Kong Dollar Singapore Dollar Israeli Shekel New Zealand

Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

PORTFOLIO CURRENCY BASKET: PRICE PER US$ (1990 – 2015)

0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 1.05 1.10 1.15 1.20 1.25 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

MSCI World Index ex-US USD Currency Basket Barclays Global Aggregate Index ex-US USD Currency Basket US$ Appreciates 63% 6.8 Years US$ Depreciates 40% 9.2 Years US$ Appreciates 30% 4.7 Years…….?

12 Millennium Global Investments Ltd

US$ Depreciates 32% 5.2 Years

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

CURRENCY IMPACT: GLOBAL EQUITY (1990- 2015)

  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 1990 1993 1996 1999 2002 2005 2008 2011 2014

MSCI World Index ex-US in USD

Currency Impact % Unhedged % Hedged %

13 Millennium Global Investments Ltd Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

CURRENCY IMPACT: GLOBAL FIXED INCOME (1990 – 2015)

  • 0.5

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 1990 1993 1996 1999 2002 2005 2008 2011 2014

Barclays Global Aggregate Index ex-US in USD

Currency Impact % Unhedged % Hedged %

14 Millennium Global Investments Ltd

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

PORTFOLIO CURRENCY RISK: CURRENCY VS. UNDERLYING ASSETS

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

% of Total Risk: MSCI World Index ex-US

Equity Currency Basket

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

% of Total Risk: Fixed Income Barclays Global Aggregate Index ex-US

Fixed Income Currency Basket

15 Millennium Global Investments Ltd Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

PORTFOLIO CURRENCY RISK: RELATIVE VOLATILITY

0% 5% 10% 15% 20% 25% 30% Dec-91 Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12 Dec-15

MSCI World Index ex-US (USD) 12-Month Rolling Volatility

Currency Basket Hedged Index

0% 2% 4% 6% 8% 10% 12% 14% Dec-91 Dec-94 Dec-97 Dec-00 Dec-03 Dec-06 Dec-09 Dec-12 Dec-15

Barclays Global Aggregate Index ex-US (USD) 12-Month Rolling Volatility

Currency Basket Hedged Index

16 Millennium Global Investments Ltd

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

PORTFOLIO CURRENCY RISK: EQUITY CORRELATION

17 Millennium Global Investments Ltd

  • 0.8
  • 0.6
  • 0.4
  • 0.2

0.0 0.2 0.4 0.6 0.8 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Correlation

Currency Basket vs. MSCI World Index ex-US (Hedged): 2-Year Rolling Correlation

2-Year Rolling Correlation

Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

PORTFOLIO CURRENCY RISK: FIXED INCOME CORRELATION

18 Millennium Global Investments Ltd

  • 0.8
  • 0.6
  • 0.4
  • 0.2

0.0 0.2 0.4 0.6 0.8 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014

Correlation

Currency Basket vs. Barclays Global Agg. Index ex-US (Hedged): 2-Year Rolling Correlation

2-Year Rolling Correlation

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2. 19 Millennium Global Investments Ltd

CURRENCY AS A DIVERSIFIER: RELATIVE VOLATILITY VS. CORRELATION

0% 2% 4% 6% 8% 10% 12% 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0

  • 0.1
  • 0.2
  • 0.3
  • 0.4
  • 0.5
  • 0.6
  • 0.7
  • 0.8
  • 0.9
  • 1.0

Portfolio Volatility Correlation

Barclays Global Aggregate Index ex-US

HEDGED 100% HEDGED 70%

Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2. 20 Millennium Global Investments Ltd

CURRENCY AS A DIVERSIFIER: RELATIVE VOLATILITY VS. CORRELATION

0% 2% 4% 6% 8% 10% 12% 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0

  • 0.1
  • 0.2
  • 0.3
  • 0.4
  • 0.5
  • 0.6
  • 0.7
  • 0.8
  • 0.9
  • 1.0

Portfolio Volatility Correlation

Barclays Global Aggregate Index ex-US

HEDGED 100% HEDGED 70% HEDGED 50% HEDGED 30% NO HEDGE

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2. 21 Millennium Global Investments Ltd

CURRENCY AS A DIVERSIFIER: RELATIVE VOLATILITY VS. CORRELATION

0% 2% 4% 6% 8% 10% 12% 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0

  • 0.1
  • 0.2
  • 0.3
  • 0.4
  • 0.5
  • 0.6
  • 0.7
  • 0.8
  • 0.9
  • 1.0

Portfolio Volatility Correlation

Barclays Global Aggregate Index ex-US

HEDGED 100% HEDGED 70% HEDGED 50% HEDGED 30% NO HEDGE

5% 7% 9% 11% 13% 15% 17% 19% 21% 23% 25% 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0

  • 0.1
  • 0.2
  • 0.3
  • 0.4
  • 0.5
  • 0.6
  • 0.7
  • 0.8
  • 0.9
  • 1.0

Portfolio Volatility Correlation

MSCI World Index ex-US

HEDGED 100% HEDGED 70% HEDGED 50% HEDGED 30% NO HEDGE Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

CURRENCY AS A DIVERSIFIER: DECLINING EQUITY MARKETS (1990-2015)

22 Millennium Global Investments Ltd

  • 20%
  • 15%
  • 10%
  • 5%

0% 5% 10% Feb-90 Jun-90 Sep-90 Aug-91 Jan-92 Apr-92 Sep-92 Sep-93 Mar-94 Nov-94 Mar-95 Oct-95 Jul-96 Aug-97 Aug-98 Jul-99 Apr-00 Sep-00 Dec-00 May-01 Aug-01 Apr-02 Jul-02 Dec-02 Mar-03 May-04 Mar-05 May-06 Jul-07 Dec-07 Mar-08 Sep-08 Jan-09 Oct-09 May-10 Nov-10 Jun-11 Sep-11 Apr-12 Aug-13 Jul-14 Dec-14 Sep-15

Currency Basket Returns vs. MSCI World Index ex-US (Hedged) Negative Returns

Hedged Index Currency Basket

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

HEDGE RATIOS RISK VS. RETURN: 1990 – 2015

0% (IR = 0.13) 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% (IR = 0.14)

2.12% 2.14% 2.16% 2.18% 2.20% 2.22% 2.24% 2.26% 14.5% 15.0% 15.5% 16.0% 16.5% 17.0% 17.5% Annualised Return Annualised Volatility

MSCI World Index ex-US

0% (IR = 0.69) 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% (IR = 2.21)

5.70% 5.80% 5.90% 6.00% 6.10% 6.20% 6.30% 6.40% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% Annualised Return Annualised Volatility

Barclays Global Agg. Index ex-US

23 Millennium Global Investments Ltd Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

HEDGE RATIOS: JANUARY 1990 – JULY 1995

0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 1.05 1.10 0.6 0.7 0.8 0.9 1.0 1.1 1.2 1990 1991 1992 1993 1994 1995

MSCI World Index ex-US: Hedged vs. Unhedged

Unhedged % Hedged % USD Basket (RHS)

0% (IR = 0.10) 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% (IR = -0.24)

  • 5.0%
  • 4.0%
  • 3.0%
  • 2.0%
  • 1.0%

0.0% 1.0% 2.0% 3.0% 16.5% 17.0% 17.5% 18.0% 18.5% 19.0% Annualised Return Annualised Volatility

Hedge Ratio: Risk vs. Return

24 Millennium Global Investments Ltd

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

HEDGE RATIOS: JULY 1995 – JANUARY 2002

0.90 1.00 1.10 1.20 1.30 1.40 1.50 1.60 1.70 0.75 1.00 1.25 1.50 1.75 2.00 2.25 2.50 1995 1996 1997 1998 1999 2000 2001

MSCI World Index ex-US: Hedged vs. Unhedged

Unhedged % Hedged % USD Basket (RHS)

0% (IR = 0.06) 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% (IR = 0.59)

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 7.0% 8.0% 9.0% 14.6% 14.7% 14.8% 14.9% 15.0% 15.1% 15.2% Annualised Return Annualised Volatility

Hedge Ratio: Risk vs. Return

25 Millennium Global Investments Ltd Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2. 0.60 0.65 0.70 0.75 0.80 0.85 0.90 0.95 1.00 1.05 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00 2.20 2.40 2002 2003 2004 2005 2006 2007 2008

MSCI World Index ex-US: Hedged vs. Unhedged

Unhedged % Hedged % USD Basket (RHS)

HEDGE RATIOS: FEBRUARY 2002 – MARCH 2008

26 Millennium Global Investments Ltd

0% (IR = 0.84) 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% (IR = 0.25)

2.0% 4.0% 6.0% 8.0% 10.0% 12.0% 12.8% 12.9% 13.0% 13.1% 13.2% 13.3% 13.4% Annualised Return Annualised Volatility

Hedge Ratio: Risk vs. Return

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

HEDGE RATIOS: MARCH 2008 – FEBRUARY 2009

27 Millennium Global Investments Ltd

0% (IR = -1.95) 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% (IR = -2.02)

  • 55.0%
  • 52.5%
  • 50.0%
  • 47.5%
  • 45.0%
  • 42.5%
  • 40.0%

20.0% 21.0% 22.0% 23.0% 24.0% 25.0% 26.0% 27.0% 28.0% Annualised Return Annualised Volatility

Hedge Ratio: Risk vs. Return

0.95 1.00 1.05 1.10 1.15 1.20 0.40 0.50 0.60 0.70 0.80 0.90 1.00 1.10 Feb-08 Apr-08 Jun-08 Aug-08 Oct-08 Dec-08 Feb-09

MSCI World Index ex-US: Hedged vs. Unhedged

Unhedged % Hedged % USD Basket (RHS) Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

HEDGE RATIOS: MARCH 2009 – APRIL 2011

28 Millennium Global Investments Ltd

0% (IR= 1.63) 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% (IR = 1.44)

19.0% 21.0% 23.0% 25.0% 27.0% 29.0% 31.0% 33.0% 35.0% 14.0% 15.0% 16.0% 17.0% 18.0% 19.0% 20.0% Annualised Return Annualised Volatility

Hedge Ratio: Risk vs. Return

0.75 0.80 0.85 0.90 0.95 1.00 1.00 1.10 1.20 1.30 1.40 1.50 1.60 1.70 1.80 1.90 Feb-09 Aug-09 Feb-10 Aug-10 Feb-11

MSCI World Index ex-US: Hedged vs. Unhedged

Unhedged % Hedged % USD Basket (RHS)

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

HEDGE RATIOS: JULY 2011 – DECEMBER 2015

0.95 1.00 1.05 1.10 1.15 1.20 1.25 1.30 0.70 0.80 0.90 1.00 1.10 1.20 1.30 1.40 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15

MSCI World Index ex-US: Hedged vs. Unhedged

Unhedged % Hedged % USD Basket (RHS)

0% (IR = -0.04) 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% (0.42)

  • 1.0%

0.0% 1.0% 2.0% 3.0% 4.0% 5.0% 6.0% 12.0% 12.5% 13.0% 13.5% 14.0% 14.5% 15.0% 15.5% 16.0% Annualised Return Annualised Volatility

Hedge Ratios: Risk vs. Return

29 Millennium Global Investments Ltd Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

HEDGED VS. UNHEDGED: ANNUAL RETURNS

  • 50%
  • 40%
  • 30%
  • 20%
  • 10%

0% 10% 20% 30% 40% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

MSCI World Index ex-US Hedged vs. Unhedged Annual Returns

Unhedged % Hedged %

  • 2.5%

5.2% 8.8% 0.1%

  • 7.2%
  • 13.3%

5.5%

  • 8.8%
  • 9.5%
  • 5.5%

10.8% 19.5% 8.2%

  • 14.7%

6.4% 6.5%

  • 4.3%

7.1% 2.4%

  • 0.3%

0.1%

  • 4.0%
  • 10.1%
  • 6.6%
  • 20%
  • 15%
  • 10%
  • 5%

0% 5% 10% 15% 20% 25% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Currency Impact %

30 Millennium Global Investments Ltd

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

HEDGED VS. UNHEDGED: ANNUAL VOLATILITY

31 Millennium Global Investments Ltd 0% 5% 10% 15% 20% 25% 30% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

MSCI World Index ex-US: Hedged vs. Unhedged Annual Volatility

Unhedged % Hedged %

2.6% 2.2% 0.7% 1.0%

  • 2.5%
  • 0.3%
  • 1.3%

0.3% 3.4% 0.1%

  • 0.8%

0.6% 3.7% 0.8% 0.3% 1.5% 5.1% 6.8% 8.0% 6.5% 4.6% 2.9% 3.2%

  • 0.2%
  • 5%

0% 5% 10% 15% 20% 25% 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Currency Impact %

Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

LARGE MACRO-DRIVEN MOVES IN CURRENCY MARKETS: 2013 - 2015

Swiss Franc: 22% Trough to Peak Yen: 61% Peak to Trough Euro: 24% Peak to Trough AUD: 36% Peak to Trough

32 Millennium Global Investments Ltd

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

RESULT: NORMALISED LEVELS OF VOLATILITY AFTER REACHING 25-YEAR LOWS

5 10 15 20 25 30 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16

EURUSD Vol

10 20 30 40 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-1

JPYUSD Vol

5 10 15 20 25 30 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 Jan-14 Jan-16

GBPUSD Vol

25-year lows in realised volatility

33 Millennium Global Investments Ltd Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

……AS REFLECTED IN CURRENCY OPTION MARKETS

34 Millennium Global Investments Ltd 2 4 6 8 10 12 14 16 18 20 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 In %

Implied Volatility

EURUSD USDJPY USDCNY

  • 3
  • 2
  • 1

1 2 3 4 5 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 In %

Implied Volatility Skew: OTM Call minus OTM Put

EURUSD USDJPY USDCNY

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2.

OUTLOOK: CONTINUED GLOBAL MACROECONOMIC PRESSURES

2016 Global Growth Forecasts (Bloomberg): Rolling Over Asian Exports (% YoY): Weakening Inflation Expectations (Swaps 5y5y): Deteriorating/Diverging(?) Policy Rate Divergence

35 Millennium Global Investments Ltd Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2. 36 Millennium Global Investments Ltd

FUNDAMENTALLY DRIVEN VOLATILITY: DISPERSION

  • 21.3
  • 11.7
  • 7.3
  • 6.3
  • 6.2
  • 5.6
  • 4.1
  • 3.0
  • 2.6
  • 1.4
  • 1.1
  • 0.6
  • 0.2
  • 0.2

0.1 0.2 1.2 1.2 1.3 1.5 2.3 2.8 3.2 3.2 3.8 4.0 4.1 4.5 4.5 6.3 8.5

  • 25
  • 20
  • 15
  • 10
  • 5

5 10 15 Argentine Peso Russian Ruble Mexican Peso South African Rand Colombian Peso British Pound South Korean Won Brazilian Real Canadian Dollar Indian Rupee Taiwanese Dollar Turkish Lira Hong Kong Dollar Israeli Shekel Chinese Renminbi United States Dollar Norwegian Krone Australian Dollar Polish Zloty Singapore Dollar Swiss Franc Swedish Krona New Zealand Dollar Chilean Peso Danish Krone Euro Czech Koruna Indonesian Rupiah Hungarian Forint Malaysian Ringgit Japanese Yen

Outright Return in % 3m Spot Return in % (as of 18/2/2016)

  • Macroeconomic divergence

‒ DM vs. DM: US vs. Europe and Japan ‒ EM vs. EM: Mexico vs. Brazil ‒ DM vs. EM

  • Monetary policy divergence

‒ Fed vs. ECB and BOJ ‒ BOE vs. ECB or FED ‒ ECB vs. Riksbank ‒ Latin America vs. Emerging Asia

  • Sustained collapse in commodities
  • Policy shocks and mistakes

‒ SNB (Jan 2015) ‒ PBOC (Aug 2015 & Dec 2015) ‒ BOJ (Jan 2016) ‒ Fed (2016?) ‒ Brexit (2016)

  • EM structural adjustments

‒ Reformers: China, Mexico, India, Indonesia ‒ On the fence: Poland, Turkey, South Africa ‒ Recalcitrant: Russia, Brazil

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Source: Millennium Global and Bloomberg, March 2016. This information is provided for illustration, information & educational purposes only. This information is intended for investment professional use only and is not for public distribution. Information is subject to change at any time without notice. Certain accounting assumptions have been made and some unreconciled and/or estimated values used in compiling this report, reasonable people may disagree with the assumptions used and expectations developed there from. We kindly draw your attention to the Important Disclosures on page 2. 37 Millennium Global Investments Ltd

CURRENCY MANAGEMENT SOLUTIONS

How Objective Passive Hedging Static hedge ratio applied to fixed percentage of currency exposure Reduce currency risk Dynamic Hedging Periodically adjust hedge ratio(s) based on currency outlook Reduce currency risk, but improve performance vs. passive hedge Active Currency Overlay Actively manage long and short positions in portfolio’s existing currency exposures Treat currency as a factor risk and improve risk-adjusted portfolio return Absolute Return Actively manage long and short positions in broad currency universe Use currency as uncorrelated source of attractive risk-adjusted returns in absolute return framework