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INVESTMENTS IN REAL ECONOMY

PORTFOLIO «COMMODITY BASKET» 2

WE OFFERTO FIND OUT

MORE ABOUT KEY CHARACTERISTICS

OF «COMMODITYBASKET»

PORTFOLIO.

«COMMODITY BASKET»:

More profitable than fund,more accessible than portfolio

Todays investment technologies offer broad opportunities for allocation of capital: from individual portfolios to mutual fund units. Rietumu banks’ financial analysts and portfolio managers are focused on selecting the best possible scenario that meets investor’s personal requirements.

High-net-worth professional investors usually prefer individual portfolios to allocate their assets. Individual portfolios imply the specific investment selection process and unique management principles.

Investments in mutual fund units is an alternative approach, focused on finding solutions for more standardized tasks and allocating funds in smaller volumes.

Direct ownership of securitiesApplication of best-performing investment models

Series of investment portfolios, developed by Rietumu Asset Management experts are based on combination of individual portfolios construction principles and mutual fund management techniques. Their specific features are:



Assets with guaranteed demandInvestment portfolio «Commodity basket» developed by Rietumu Asset Management specialists is an opportunity to profit together with leading global companies from the commodity sector and associated industries of global economy. We offer stocks of companies whose goods are ensured with guaranteed demand for many years to come. Under condition of limited supply these stock possess high growth potential.

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Historical performance of«Commodity Basket» model portfolio,

10 years

The number of years, after which there will becomplete depletion of resources at current production rates

World Population growth50 years, bln.

Global GDP growth, 50 years, trn. USD

Growth of world productionof agricultural products50 years, k tons

Annual portfolio growth

+21.9%*

* Backtesting of «Commodity basket» model portfolio from 01.01.2005.Past performance does not guarantee future profitability.

Source: US Geological Survey, World Bureau of Metal Statistics, International Copper Study Group,World Gold Council, Silver Institute, World Nuclear Association, BP Statistical Review,U.S. Census Bureau, World Bank, USDA, Bloomberg, Rietumu Asset Management

Resource scarcity

Consumption growth

IndiumSi lver

Ant imonyTinOi l

LeadGoldZinc

UraniumCopper

Natural gasNickel

Coal

50 years 100 years 150 years

01020304050607080

012345678

19651970

19751980

19851990

19952000

20052010

19651970

19751980

19851990

19952000

20052010

19651969

19731977

19811985

19881992

19962000

20042008

2011

0

500

1,000

1,500

2,000

2,500RiceCornWheat

PORTFOLIO «COMMODITY BASKET»


Investment idea«Commodity Basket» portfolio’s investment idea is built in the light of major characteristics of the global commodity sector and associated industries.

Commodities are one of major classes of primary resources in the context of world economy characterized by great variety. Four general groups of commodities are:

Price formation of each listed commodity is influenced by steady growing consumption and limited supply. The key demand growth drivers for consumer goods ( food, apparel, pharmaceuticals) and manufactured goods (engineering tools, assembly lines, shipping facilities, aircraft) are world population growth, urbanization and increasing living standards. This translates into increased demand for commodities. Additionally, supply and demand equilibrium is affected by resource scarcity.

In a long run, this leads to price increase on commodities and end-products, and, consequently, creates a new inflationary cycle. Hence, stocks of commodity sector companies could be considered as “defensive” asset, hedging from negative inflationary effects.

Another factor affecting pricing policy on commodities is growing monetary base of the largest central banks in the world.

According to Bloomberg Commodity Index , in June 2015 market prices on basic commodities approached price level of 2002. This fact could be considered as a signal of beginning of new price growth cycle.

Energy productsMetals

Agricultural goods

Other goods

precious metalsbase metalsferrous metalscrops

livestock

crude oil, natural gas, residual oil, ethanolgold, silver, platinum, palladiumaluminium, copper, nickel, zinc, leadiron ore, steel, cast iron, manganwheat, rice, coffee, cocoa beans, sugar, soy, oil seed rapecattle, swine, birdfertilizers, cellulose, paper, palm-oil, wool

Group Subgroup Components

YearWheat Corn Rice Soy Cotton

World production of certain commodities

Market prices of basic commodities

* Increase from 1970Source: U.S. Department of Agriculture, Bloomberg, Rietumu Asset Management

Source: Bloomberg, Rietumu Asset Management

thous. tonnes thous. tonnes thous. tonnes thous. tonnes mln. tonnes

1960197019801990200020102014Dynamicssince 1960

233.5306.5435.9588.8583.3649.9726.3

211%

199.6268.1408.7482.0591.8835.5999.4

401%

150.8213.0269.9351.4399.3450.6476.1

216%

-42.180.9104.3175.8264.3318.3

655% *

9.812.113.819.019.425.625.9

164%

50

100

150

200

250

300Bloomberg Commodity Index January 2000 – June 2015 (Base 31.12.1999=100)

12 1999 08 2002 04 2005 12 2007 08 2010 04 2013 04 2015

04 2001 12 2003 08 2006 04 2009 12 2011 08 20144



Structure (1-2)

INVESTMENT PROCESS

RISK-CONTROL AND MONITORING

Investment universe Portfolio constructionQuantitative analysis Qualitative analysis

Industries: oil and gas, mining,iron/steel, agricultural, chemicals,machinery etc.

RAM investment models select stocks ofcompanies with strong financial fundamentalsand attractive market valuation

Analytical data input from publiclyavailable sources

Portfolio managers construct finalportfolio based on their expertise

Stock selection is scrupulous multi-stage process conducted by Rietumu Asset Management experts.

Stocks of public

companies fromthe commodity

sector and associatedindustries

«Commodity Basket» portfolio is composed of publicly quoted stocks from the commodity sector and associated industries of global economy.

The construction of investment portfolio is dynamic process. Its actual composition is defined by professional portfolio managers. The portfolio is rebalanced in a consistent periodic manner and can include stocks of 25-35 issuers.

Portfolio includes stocks of industry leading companies with strong financial fundamentals and attractive market valuation. Stock selection process is based on modern and efficient investment models, developed by Rietumu Bank’s financial analysts and portfolio managers.

Investment typeAsset class CurrencyMinimum investment amountGeographical focus

Investment limitations Recommended investment horizonExpected returnSubscription feeManagement fee

Individual Portfolio

Stocks

USD

100 000 USD

Global markets

Stocks of public companies from the commoditysector and associated industries

More than 3 years

More than 10% annually

0.35%

1.50% per annum



Structure (2-2)

Number of IssuersAverage Equity RatioAverage Return on Equity RatioAverage Price to Earnings RatioAverage Price to Book RatioAverage Beta

2755.41%11.98%

14.451.571.18

Key Statistics

RIO TINTO PLCARCHER-DANIELS-MIDLAND COSANDERSON FARMS INCINGREDION INCSALMAR ASALUKOIL OAOMMC NORILSK NICKEL OJSCTGS NOPEC GEOPHYSICAL CO ASASUPERIOR ENERGY SERVICES INCNATIONAL OILWELL VARCO INC

3.75%3.75%3.73%3.73%3.73%3.72%3.72%3.72%3.71%3.71%

Top 10 Holdings

100%BondsStocksOther

Asset AllocationStructure

Currency Exposure0% 20% 40% 60%

USD

NorthAmerica37%

WesternEurope26%

EasternEurope11%

APAC22%

Africa4%

Geographical Exposure

37%15%

11%11%

7%7%

4%4%4%

United StatesChina

Great Br i ta inRussia

NorwayAustral ia

South Afr icaNether lands

Sweden

0% 10% 20% 30% 40%

55%11%11%11%

4%4%4%

GBPNOKHKDEURAUDSEK

0% 10% 20% 30% 40%

Industry Group Exposure

37%19%

15%15%

4%4%4%4%

Oil&GasMining

Oi l & Gas ServicesFood

AgricultureChemicals

CoalMachinery




Portfolio composition

RIO LNADM USSAFM USINGR USSALM NOLKOD LIMNOD LITGS NOSPN USNOV USSUBC NOANTO LNSSL USESV USBLT LN3983 HK1088 HK135 HKRDSA NAWPL AUBOL SSATAD LIMUR USVLO USDE USCEO USSEB US

RIO TINTO PLCARCHER-DANIELS-MIDLAND COSANDERSON FARMS INCINGREDION INCSALMAR ASALUKOIL OAOMMC NORILSK NICKEL OJSCTGS NOPEC GEOPHYSICAL CO ASASUPERIOR ENERGY SERVICES INCNATIONAL OILWELL VARCO INCSUBSEA 7 SAANTOFAGASTA PLCSASOL LTDENSCO PLC-CL ABHP BILLITON PLCCHINA BLUECHEMICAL LTD - HCHINA SHENHUA ENERGY CO-HKUNLUN ENERGY CO LTDROYAL DUTCH SHELL PLCWOODSIDE PETROLEUM LTDBOLIDEN ABTATNEFTMURPHY OIL CORPVALERO ENERGY CORPDEERE & COCNOOC LTDSEABOARD CORP

Great BritainUnited StatesUnited StatesUnited StatesNorwayRussiaRussiaNorwayUnited StatesUnited StatesGreat BritainGreat BritainSouth AfricaUnited StatesAustraliaChinaChinaChinaNetherlandsAustraliaSwedenRussiaUnited StatesUnited StatesUnited StatesChinaUnited States

Basic MaterialsConsumer, Non-cyclicalConsumer, Non-cyclicalConsumer, Non-cyclicalConsumer, Non-cyclicalEnergyBasic MaterialsEnergyEnergyEnergyEnergyBasic MaterialsEnergyEnergyBasic MaterialsBasic MaterialsEnergyEnergyEnergyEnergyBasic MaterialsEnergyEnergyEnergyIndustrialEnergyConsumer, Non-cyclical

MiningAgricultureFoodFoodFoodOil&GasMiningOil & Gas ServicesOil & Gas ServicesOil & Gas ServicesOil & Gas ServicesMiningOil&GasOil&GasMiningChemicalsCoalOil&GasOil&GasOil&GasMiningOil&GasOil&GasOil&GasMachineryOil&GasFood

42.9344.4680.8143.1950.1472.5736.2675.7355.3061.6564.7848.1861.0151.1552.2768.2055.1644.9348.7065.7154.6475.7551.2145.3914.7857.2773.86

13.5012.7734.7716.0023.184.5727.8412.995.1510.65-5.467.1321.28-36.2012.770.7613.4810.868.4515.5511.0517.378.9218.5127.3616.6913.38

12.2516.565.5914.6511.118.9313.1413.0913.208.137.1322.817.143.2610.5586.077.0711.1312.159.1516.396.6231.9410.2913.166.5112.05

1.661.621.722.752.450.405.521.690.740.970.561.701.570.591.320.750.921.181.061.401.751.070.891.583.931.031.53

5.672.301.182.078.586.3115.444.711.603.92

2.014.632.806.950.455.382.586.7212.211.423.593.422.482.505.21

1.150.931.041.070.801.621.661.021.751.181.201.461.701.431.380.420.880.731.330.731.622.181.371.230.591.220.59

2641.0048.6474.5480.97116.5043.7616.60180.4020.0646.9574.90682.0035.3021.421269.002.7717.187.7425.7035.27158.2031.8340.9564.4796.19139.453598.01

GBPUSDUSDUSDNOKUSDUSDNOKUSDUSDNOKGBPUSDUSDGBPHKDHKDHKDEURAUDSEKUSDUSDUSDUSDUSDUSD

Portfolio structure and composition are indicative. Its actual composition is defined by portfolio managers and rebalanced in a consistent periodic manner.

Ticker Name of the issuer Country Industry Sector Industry Group Equityrat io

Returnon Equityrat io

Pr ice toEarningsrat io

Pr iceto Bookrat io

Div idendYield( indicated)

Beta Pr ice( localcurrency)

Currency


PORTFOLIO «COMMODITY BASKET»


Historical performance of the model portfolio

8

Rietumu Asset Management experts ran model portfolio «Commodity Basket» historical performance simulation for 10 years, from January 1, 2005.

Calculated value appreciation equaled +21,9% annualy. Consequently, portfolio historic return exceeded the benchmark by 10 times.

Model Por tfol io Character ist ics (01.01.2005-01.07.2015)

ModelPor tfol io

Benchmark(MSCI ACWI)

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Historical performance of«Commodity basket» model portfolio (01.01.2005 = 100)

Performance versus the Benchmark

0

100

200

300

400

800

700

600

500Model portfolio Benchmark

+490.06%

+49.73%

-20%

0%

20%

40%

60%

80%

Price correction on commoditiesover the last few years offers anexcellent opportunity for investment

Backtesting of «Commodity Basket» model portfolio from 01.01.2005. Past performance does not guarantee future profitability.

Average return – 3 monthsAverage outperformance – 3 monthsAverage annual returnAverage annual outperformanceReturn since 01.01.2005Outperformance 01.01.2005Annualized volatilityMaximum drawdownSharpe ratio (annualized)Information ratio (annualized)Jensen's Alpha (annualized)BetaTracking errorCorrelationAverage number of portfolio holdings

5.48%4.12%21.91%16.50%490.06%440.32%30.42%-54.56%0.640.907.57%1.4618.39%83.99%35

1.35%-5.41%-49.73%-17.45%-50.66%-------

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Source: Bloomberg, Rietumu Asset Management



TermsVolatility – a statistical measure characterizing the size of changes in an asset's value. A higher volatility means that an asset's value can be spread out over a larger range of values and, consequently, implies higher risk level.

Correlation – a statistical relationship between a portfolio and a benchmark. The correlation coefficient ranges between -1 (-100%) and +1 (+100%). The correlation coefficient of +1 or +100% implies that changes in a portfolio value perfectly duplicate a benchmark changes. The correlation coefficient of -1 or -100% implies that a portfolio value moves with the same strength as a benchmark value but in the opposite direction. The correlation coefficient of 0 implies that there is no relationship between a portfolio and a benchmark.

Beta – a measure of market risk, or systematic risk. The Beta coefficient shows the volatility, as well, asset correlation to a benchmark. The Beta coefficient of1 implies that an asset will move with a benchmark. The Beta coefficient of less than 1 implies that an asset will be less volatile than a benchmark (lower market risk). Thus, the Beta coefficient higher than 1 implies higher price volatility and higher market risk.

Information ratio – a ratio of risk-adjusted portfolio returns. The information ratio shows portfolio returns above the returns of a benchmark adjusted by the volatility of those returns.

Jensen's Alpha – a portfolio performance measure adjusted by market risk, the average market return and risk-free interest rate. The coefficient describes the ability of portfolio manager to generate excess risk-adjusted returns over a benchmark, i.e. manager’s efficiency. The higher the coefficient, the more efficient portfolio management is.

Sharpe ratio – a measure of portfolio returns adjusted by the risk-free rate. The Sharpe ratio describes how portfolio returns compensate the additional risk an investor is forced to take. The Sharpe ratio is calculated as the excess return (portfolio returns less the risk –free rate) divided by Standard deviation of portfolio returns.

Tracking error – a measure of a divergence between the price changes of a portfolio and the price changes of a benchmark. The lower the coefficient, the smaller the divergence.

Equity ratio – total shareholder’s equity to total assets ratio.

Maximum Drawdown – the maximum decline in a portfolio value, quoted as the percentage, from the previous price peak to the consequent price bottom during the specific period of time.

Price-to-book ratio (PB ratio) – a company’s market capitalization to it’s book value.

Price-to-earnings ratio (PE ratio) – a company’s market capitalization to it’s net income.

Return on equity ratio (ROE ratio) – a company’s net profit to it’s total shareholder’s equity.



Disclaimer

DISCLAIMER: This overview (including any attachment (-s)) does not constitute a request, offer, recommendation or invitation of any kind to buy, sell or redeem any financial instruments or to conclude and/or to perform other transactions of any kind.

The authors of the information presented in this overview, as well as JSC “Rietumu Asset Management" IMF, registered in the Commercial Register of Republic of Latvia on January 29, 2014, registration number 40103753360, legal address: 7 Vesetas Street, Riga, LV-1013, Latvia, hereinafter referred to as “RAM”, both together and individually, are not liable for possible use of the information presented in this overview, including any direct or indirect damages (including lost profits), as well as any penalties. Evaluations, opinions and forecasts presented in this overview are based solely on the RAM’s specialists' conclusions regarding financial instruments and issuers considered in this overview. While the information contained in this overview is obtained from sources believed to be reliable, the RAM does not guarantee its accuracy and completeness. Any of your investment decision should be fully based on your assessment of your personal financial circumstances and investment objectives. The RAM draws your attention to the fact that transactions in the securities and financial instruments market involve risk and require appropriate knowledge and experience.

investments in real economy - rietumu banka · pdf fileportfolio «commodity...

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