northfield’s 25th annual research conferenceprevailing regime of the day • the allocation...
TRANSCRIPT
Quantitative Asset Management for Turbulent Markets
Northfield’s 25th Annual Research Conference San Diego
August 7 – 9, 2012
Michel Crouhy Head of Research & Development
NATIXIS Corporate & Investment Bank [email protected]
2
–Natixis is the corporate and investment banking arm of the BPCE Group.
–BPCE Group is the: –9th Banking Group in Europe ranked by net profit, $3.68Bn (FY 2011 Results)(1)
–23rd Banking Group in the World in terms of total assets, $2,052.57Bn (December 31, 2011) (2)
–(1) Source: banksdaily.com; (2) Source: www.relbanks.com –** Exchange rate: €1 = $1.298100, *** Exchange rates: For 2011: €1 = $1.391955; for 2010: €1 = $1.325717
2
BCPE Group
Groupe BPCE, at a glance… (Figures as of December 31, 2011)
2nd-largest banking player in France
36 million clients
8.1 million cooperative shareholders
117,000 employees
8,000 bank branches
Net Banking Income***: $32.51 bn Net income (group share)***: $3.74 bn Tier 1 capital**: $53.35 bn Core Tier-1 ratio: 9.1%
Financial stakes: Coface
Commercial banking and insurance:
subsidiaries
50% 50%
19 BANQUE
POPULAIRE BANKS
17 CAISSE
D’EPARGNE BANKS
72.3%
27.7% Float
3
Natixis - One Company, Three Core Businesses
Source Natixis
Exchange rates: For 2012: €1 = $1.3343; For 2011: €1 = $1.391955;for 2010: €1 = $1.325717
* *Including non operating items, o/w own senior debt fair-value adjustment included in net revenues
Natixis
Investment Solutions
• Asset Management (NGA) • Insurance • Private Banking • Private Equity
Specialized Financial Services
• Factoring • Sureties & Guaranties • Leasing • Consumer Finance
Corporate & Investment Banking
• Equity Markets • Fixed Income • Financing
Key Figures
Consistent performance** as of December 31, 2011
Net income (group share) $2.174Bn -5% vs. 2010
Net revenues $9.35Bn
+8% vs. 2010
Long-term ratings as of June 19, 2012
Standard & Poor’s A (stable)
Moody’s
A2 (stable)
Fitch Ratings A+ (negative)
Financial structure as of December 31, 2011
Revenue Breakdown by core businesses (2011 Results)
20%
48%
32%
INVESTMENT SOLUTIONS
$2.62bn +10% Vs. 2010
CIB
$3.84bn -4% Vs. 2010
SFS
$1.6bn +12% Vs. 2010
Core Tier 1 ratio 10.2% Including P3CI transaction impact
Tier 1 ratio 11.9%
Including P3CI transaction impact
Tier 1 capital $21.3Bn
4
Natixis Global Asset Management (Affiliated Companies) Industry-leading investment thinkers in key markets globally
Expertise: Asian & emerging Asian equities Founded: 1998 Headquarters: Singapore AUM: $772 M
Expertise: Customized hedge fund solutions Founded: 2004 Headquarters: Paris, France
Expertise: European multi-strategy specialists Founded: 1984 Headquarters: Paris, France AUM: $386.1 B
Expertise: Index-based solutions Founded: 2002 Headquarters: Oakland, CA AUM: $394 M
Expertise: Hedged equity strategies Founded: 1977 Headquarters: Cincinnati, OH AUM: $8.5 B
Expertise: Multi-style, multimanager funds Founded: 2001 Headquarters: Paris, France AUM: $2.3 B
Expertise: Real estate investments Founded: 1981 Headquarters: Boston, MA AUM: $14.8 B
Expertise: Alternative global fixed-income and global macro management Founded: 2010 Headquarters: London, UK AUM: $2.5 B
Expertise: ETFs and quantitative strategies Founded: 2009 Headquarters: Paris, France AUM: $408 M
Expertise: European real estate Founded: 2001 Headquarters: Paris, France AUM: $24.6 B
Expertise: Global/international investments Founded: 1994 Headquarters: Ft. Lauderdale, FL AUM: $7.5 B
Expertise: Money market funds & cash management services Founded: 1970 Headquarters: New York, NY AUM: $13.0 B
Expertise: Absolute return strategies Founded: 1999 Headquarters: Cambridge, MA AUM: $3.9 B
Expertise: Value investments Founded: 1976 Headquarters: Chicago, IL AUM: $74.6 B
Expertise: U.S. small- and mid-cap value investments Founded: 1984 Headquarters: San Francisco, CA AUM: $1.9 B
Expertise: Alternative investment mgmt. Founded: 1988 Headquarters: Chicago, IL AUM: $10.6 B
Expertise: Indian equity and fixed-income investments Founded: 2000 Headquarters: Mumbai, India AUM: $4.8 B
Expertise: Value equity investments Founded: 1970 Headquarters: Houston, TX AUM: $7.4 B
Expertise: Concentrated equity portfolios Founded: 1990 Headquarters: Boston, MA AUM: $4.7 B
Expertise: Actively managed, research-driven equity and fixed-income portfolios Founded: 1926 Headquarters: Boston, MA AUM: $169.4 B
Expertise: U.S. private equity Founded: 2008 Headquarters: New York, NY AUM: $846 M
Expertise: Overlay management Founded: 2005 Headquarters: Oakland, CA AUM: $9.3 B
August 17, 2012 4
EUROPE
2
AUM as of 31 March 2012. 1 Caspian Private Equity is a joint venture between Natixis
Global Asset Management, Natixis Private Equity and Caspian Holdings.
2A division of NGAM Advisors, L.P.
2
1
Source: Natixis Global Asset Management
5
I. Introduction
II. Advanced Risk Perception Indicator and Risk Control Framework
III. Rolling Volatility Strategies
Agenda
6
I. Introduction
7
Asset Allocators have to cope with tail risk
The rewards of risk premium are wiped out by a small number of extreme risk events
8
Mitigating Tail Risk
Approach Description Remarks
Stop Loss Mechanism Divest from risky assets when the market drops to a predetermined barrier
• Simple • Reactive
Use Derivatives Derivatives such as options or futures to provide downside protection
• Timing sensitive • Potentially expensive
Subjective approach For example “bonus smoothing” Gradually divest from equities in good years
• Subjective • Perceived as black
box
Quantitative Models [Reactive]
Rule based asset allocation such as CPPI or volatility target strategies
• Reactive • Objective
Quantitative Models [Forecasting]
Fundamental research based quantitative models
Equity Markets ARPI and Risk Control
Framework
9
II. Advanced Risk Perception Indicator and Risk Control Framework
10
Equity Markets - ARPI and Risk Control Framework
• Natixis Equity Markets has developed a family of investable indexes:
Rule-based Quantitative technology developed in-house Allocation occurs between liquid market instruments
• With these indexes, it is possible to:
Build cheap passive indexed funds Provide increasingly sophisticated guarantees and enhance investor protection
• The investment can be structured through:
Mutual Funds - Physical - Synthetic
Debt Wrappers
11
• Implied Volatility of Equity Markets (VIX)
Strong and robust anti-correlation with equity markets
Implied volatilities (vs. historical) can anticipate / estimate future realised volatility
IMPLIED VOLATILITY
• CDX Investment Grade non-Financials • CDX High Yield Risk aversion measure expressing
expectations of default rates Quantifies the conditions of access to credit
and the cost of cash
CREDIT SPREADS US YIELD CURVE DYNAMICS
What is the Advanced Risk Perception Indicator ?
• The ARPI is an indicator of perceived market risk.
• Among the numerous potential measures of investor risk aversion (in the US market), we have selected three classes of observable indicators:
• Slope 1Y-5Y • Difference 1Y-Annual Moving Average
1Y Measures medium term growth expectations Captures the effects of investor flight to
quality and movements in liquidity preference resulting from changes in the FED monetary policy
ARPI©
Average of Normalized Market Observables
12
Extracting Regimes from ARPI– the HMM Methodology
Natixis Quantitative Research implemented an algorithm that is based on a statistical model called the HMM (Hidden Markov Model)
• A recursive filter enables us convert the time series of the ARPI into a time series of regimes • The filter takes three types of information into account:
Where we are (the current level of ARPI gained from the new information) Where we have come from (the level of the regime at the previous date) How fast we are moving (incorporates the historical probability for change of regime - the
inertia)
• A change of regime occurs when the current level of ARPI becomes statistically incompatible with the current regime.
HMM Filter ARPI©
Regimet-1
Regimet
Insignificant Market Changes
and White Noise are ignored
Life-long learning – detects new trends
13
HMM Risk Regimes Are Stable
98.98% 1.02% 0.00% 0.00%
0.98% 98.63% 0.39% 0.00%
0.00% 0.36% 99.03% 0.61%
0.00% 0.00% 0.93% 99.07%
Regime 1
Regime 1
Regime 3
Regime 2
Regime 4
Regime 2 Regime 3 Regime 4
US ARPI Distribution by regime
0,00 0,20 0,40 0,60 0,80 1,00
US ARPI
Prob
abili
ty D
ensi
ty
Regime 1
Regime 2
Regime 3
Regime 4
2
0 0
23
4 4
9
00
2
4
6
8
10
2003 2004 2005 2006 2007 2008 2009 2010 2011
Changes of Regime per Year since Inception
• Key observations:
There is a high degree of inertia in the HMM model (probability of remaining in the current regime from one day to another over 95%)
Helps to minimize transaction costs in implementing a reallocation strategy
14
• Observing historical data from July 1, 1999 to July 16, 2012, we have identified 4 regimes within the perceived risk indicator.
History of the US ARPI Regimes vs S&P 500 Index
Sources : Bloomberg, Natixis from July 1, 1999 to July 16, 2012
0
200
400
600
800
1000
1200
1400
1600
1800
0
0.2
0.4
0.6
0.8
1
1.2
Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12
Regime 1 Regime 2 Regime 3 Regime 4 US ARPI SPX Index
15
• Renormalization of 3 market observations • Aggregation into an Advanced Risk Perception Indicator (ARPI) ranging from 0% (min risk) to
100% (max risk).
Contributions of the US ARPI Components
Sources : Bloomberg, Natixis from July 4, 1999 to July 16, 2012
0.0
0.2
0.4
0.6
0.8
1.0
1.2
Jul-99 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12
Contributions of the US ARPI Components from July 1, 1999 to July 16, 2012
Equity Volatility Contribution Rates Contribution Credit Contribution US ARPI
16
Putting it all together
Market Data
Allocation
Rule
ARPI
Regime
Assets
Proprietary Strategy
HMM
• The final step in the process is to allocate between asserts, based on the prevailing regime of the day
• The allocation weights between assets are generally fixed at the beginning of the strategy, and are aligned with the differing perceived risk levels associated with each regime
• As seen, in the majority of cases there is no change to the prevailing regime
Regime 1
Regime 2
Regime 4
Regime 3
Highly Aggressive Allocation
Moderately Aggressive Allocation
Moderately Conservative Allocation
Highly Conservative Allocation
17
August 17, 2012 17
Overview of the application: “The NXS SHARPe Series”
SHARPe US Equity Index
SHARPe Multi Asset
Worldwide Index
ARPI Regime
Regime 1 Offensive Profile
Low
Regime 2 Dynamic Profile
Moderate
Regime 3 Balanced Profile
High
Regime 4 Conservative Profile
Very high
100% 75%
25% 25%
75% 100%
Equity
Risk Free Asset
50%
25%
25% 35%
25%
20%
10%
10% 10% 10%
10%
10% 35%
25%
50%
35%
15% Equity
Real Estate
Commodity
Hedge Funds
Bonds MLT
Bonds ST
Cash
Allocation
RISK:
Flagship Index
18
NXS SHARPe Multi Asset Worldwide USD
Offensive Profile
25%
25%
50% 1
Dynamic Profile
35%
25%
20%
10%
10%
7
Balanced Profile
10%
10%
10%
25% 0% 10%
35%
7
Conservative Profile
50%
30%
20%
Equity
Real-Estate
Commodity
Hedge Funds
Bond MLT
Bond ST
Cash
• Dynamic reallocation between 4 distinct management profiles • Offensive, dynamic, balanced and conservative
• 7 asset classes in the worldwide markets through liquid indices
• Equity : US, Europe and Emerging Markets • Real-Estate : Listed REITsindex (US & Europe) • Commodities : Listed Commodity index • Hedge Funds : Natixis HF replicating Index ie NXS-AIR Index (Ticker Bloomberg : IQHGIXIS Index) • Medium Long Term Bonds : LT US and Europe Government bond index (duration > 3 years) • Short Term Bonds : LT US and Europe Government bond index (duration < 3 years) • Cash : Compounded overnight US rate
• A portfolio fully invested at any time, without leverage and no short positions
19
NXS SHARPe Multi Asset Worldwide USD – Performance
Comparison of the annual risk / return between asset classes
Equity
Real-EstateCommodity
Hedge Funds
Bond MLT
Bond ST
Cash
SHARPe Multi Asset Worldw ide
0%
2%
4%
6%
8%
10%
12%
0% 5% 10% 15% 20% 25% 30%Volatility
An
nu
al re
turn
Investment in the strategy and asset classes achieved from 01/7/99 to 02/12/11
Comparison of performances
0
100
200
300
400
500
600
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
SHARPe Multi Asset Worldw ideStatic StrategyEquityReal-EstateCommodityHedge FundsBond MLTBond STCash
20
● Layer 1 – Risky Asset Allocation :
The Risky Asset Allocation is designed to embed a Natixis SHARPe Quantitative Allocation
● Layer 2 – Performance Engine:
The performance engine implements a Volatility Control mechanism
A Systematic rebalancing occurs between the Natixis SHARPe Allocation and a Safe Asset
The rebalancing follows the ratio of the Target Volatility to the Realised Volatility
● Layer 3 – Smart CPPI on the Performance Engine :
A classic CPPI portfolio management technique is at risk of Cash-lock
Using Natixis ARPI and HMM, the Cash-lock is eliminated for higher risk regimes
3 Protection Layers for a Resilient Investment Solution
21
● Basic Structure:
The CPPI Protects a fixed percentage (typically 80%) of the maximum observed NAV by dynamically re-balancing between risky and risk-free assets, on the basis of a predefined mechanism
In the most simple case, the difference between current NAV and the protection level (the “cushion”) is calculated. A constant proportion of the cushion is then invested in the risky asset
As the risky asset moves, the portfolio is rebalanced in accordance with the cushion available
Constant Proportion Portfolio Insurance (CPPI)
CASH
RISK ASSET
FUND NAV = 100% PROTECTION = 80%
CUSHION = NAV – PROTECTION = 20%
MULTIPLIER = 3
60%
40%
FUND NAV = 125% PROTECTION = 100%
CUSHION = NAV – PROTECTION = 25%
MULTIPLIER = 3
FUND NAV = 90% PROTECTION = 80%
CUSHION = NAV – PROTECTION = 10%
MULTIPLIER = 3
CASH
RISK ASSET 75%
25%
CASH
RISK ASSET 30%
70%
22
Key drawbacks of traditional CPPI: • Cash-Lock: In a falling market, cushion can become zero leading to the structure becoming cash-locked • Path dependence: Fund performance has path dependency and suffers from weak recovery dynamics
Solution:
Not path-dependent (typical of standard CPPI/ Vol control offering)
Asset allocation rebalancing process is risk-regime switching-based
The ability to remove market movement sensitivity allow the product design to be less Greeks hedging
sensitive
Efficient protection in sharp market downside allow the product to react more positively in draw-down
scenarios
An optimal product feature which can allow more flexibility on actuarial (behavioral assumptions, fund
switching, lapse...) through a constant protection mechanism (no cash lock-in)
Ability to be packaged in multiple offerings (Asset-Allocation expertise, Separate Managed Account and
Derivatives) with no direct credit exposure to the model provider
Natixis Smart CPPI
A Smart CPPI product offering based on Natixis proprietary/ quantitative asset-allocation model (SHARPe) with the main product benefits:
23
● The Smart CPPI makes use of the ARPI for allocation purposes. Allocation is made according to a variable Multiplier. The Multiplier is scaled according to the ARPI
Allocation is conservative during periods of high risk aversion
Allocation is aggressive during periods of low risk aversion
Smart CPPI using the ARPI
Regime 1
Regime 2
Regime 4
Regime 3
Highly Aggressive Allocation
Highly Conservative Allocation
Moderately Aggressive Allocation
Moderately Conservative Allocation
3
0
1
5
Variable Multiplier
80%
20% Cushion
Bond Floor
X
3 Risk Asset 60%
RISK ASSET EXPOSURE = CUSHION x VARIABLE MULTIPLIER
Function of Risk Regime
24
The Vol Target Smart CPPI Strategy
RISK ASSET EXPOSURE = CUSHION x VARIABLE MULTIPLIER
Function of Risk Regime
x Volatility Adjustment Factor
25
• Back-tested Simulations from July 1999 to July 2012
The Vol Target Smart CPPI Strategy
* Past performance does not guarantee and is not indicative for future results Sources : Bloomberg, Natixis
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
60
80
100
120
140
160
180
Jul-99 Jun-00 Jun-01 Jun-02 Jun-03 Jun-04 Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12
Ris
ky A
lloca
tion
Perf
orm
ance
Smart & Smooth TIPP SPX Backtest
Effective Risky Alloc (RHS)
SPX TR Smart & Smooth TIPP Protected Level Standard TIPP (Multiplier = 3)
26
• What about Cash Lock Event risk ?
• Such an event could occur only in regime 1 or 2…
• Using the SPX as an example:
• In REGIME 1 (multiplier = 5): monetization risk if SPX draw downs > -20% between 2 rebalancing dates
• In REGIME 2 (multiplier = 3): monetization if the SPX draw downs > -33.3% between 2 rebalancing dates
• In REGIME 3 (multiplier = 1): no risk of monetization
• In REGIME 4 (multiplier = 0): no risk of monetization
The Vol Target Smart CPPI Strategy
20%
80%
t Risky asset = 20 x M Cash = 100 – 20 M
t + 1 Risky asset = 20 x M (1 - ∆) Cash = 100 – 20 M
(100 – 20 M) + 20 M (1 - ∆) > 80 ∆ < 1/M
27
Resilience of a Smart CPPI in Higher Risk Regime
28
III. Rolling Volatility Strategies
29
16
17
18
19
20
21
22
23
1m 2m 3m 4m 5m 6m 7m
Contango Volatility Shape
Protection
Earn Carry
downward slide25
27
29
31
33
35
1m 2m 3m 4m 5m 6m 7m
Backwardation Volatility Shape
Protection + positive slide
'
How It Works…
Benefit from long volatility exposure in stressed market, and from reduced cost in calm market Stressed Market Calm Market
Natixis Rolling Volatility Strategy
High negative correlation to equities Rapid & strong response to market selloff Earn positive carry when the volatility term structure inverts
More decoupled from equities Monetize upward sloping volatility term structure by selling front month Future Potentially profit from the negative roll yield
Rolling mechanism of Long/ Short Volatility depending on Volatility Shape
30
Evolution of VIX Futures Term Structures
VIX Futures Term Structures are often in contango during calm markets in backwardation during stressed markets
31
Frequency of Contango - Monthly Data since Jan 2007
SPX & TS Indicator - Data since Nov 2006
How It Works…Select an allocation with Volatility Term Structure
All sources for tables & graphs: Natixis, Bloomberg as of July 31st 2012
The term structure is measured with SPX options of different expirations. Dark bands mark periods where short term volatility (as measured by the VIX) exceeds medium term volatility (as measured by the VXV).
VIX vs. TS Indicator - Data since Jan 2007 Contango Backwardation SPX
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
1
Nov-06 Aug-07 Apr-08 Jan-09 Sep-09 Jun-10 Feb-11 Nov-11 Jul-120
200
400
600
800
1000
1200
1400
1600
18002007 2008 2009 2010 2011 2012
Jan 100% 48% 100% 100% 100% 100%Feb 100% 45% 21% 100% 100% 100%Mar 50% 40% 18% 100% 87% 100%Apr 100% 100% 100% 100% 100% 100%May 100% 100% 100% 35% 100% 100%Jun 100% 100% 100% 68% 100% 100%Jul 81% 36% 100% 100% 95% 100%Aug 0% 95% 100% 100% 0%Sep 32% 38% 100% 100% 24%Oct 100% 0% 100% 100% 81%Nov 62% 0% 80% 100% 100%Dec 100% 45% 100% 100% 100%
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
1.4
0 20 40 60 80 100
2007 2008 2009 2010 2011 2012VIX
TS
TS = Term Structure Indicator TS < 1 - Contango TS > 1 - Backwardation TS = Vix / Vxv where Vxv = CBOE S&P 500 3-Month Volatility Index
32
Investing in the Natixis Rolling Volatility Strategy can be available through a choice of vehicles:
Swap, Note linked to the strategy performance Combined with other assets as a macro-hedged portfolio fund
Flexible Investment Choices
SPX Overlay: Example of a combined allocation
Multiple users Insurance Company Asset Manager Pensions & Endowments Registered Investment advisors (RIAs) Hedge Fund, Fund of Fund Credit Fund Sovereign fund
Past performances are not reliable indicators for future results or performance. Variations may be material. All sources for tables & graphs: Natixis, Bloomberg as of May 31st 2012
0%
50%
100%
150%
200%
250%
300%
Nov-06 Dec-07 Jan-09 Feb-10 Apr-11 May-12
SPX/NXS Rolling Volatility Strategy Allocation 50%/50%SPX/NXS Rolling Volatility Strategy Allocation 75%/25%SPX
33
Convexity of the Natixis Rolling Volatility Strategy to SPX return - Data since Nov 2006
In Depth: Strong responsiveness in market downturns
Tail Events Focus
Past performances are not reliable indicators for future results or performance. Variations may be material. All sources for tables & graphs: Natixis, Bloomberg as of May 31st 2012
Natixis Rolling Volatility Strategy SPX
Year 2008 +118.0% -38.5%
2010 Flash Crash [Apr-Jul] +15.6% -16.0%
2011 S&P Downgrade [Jul-Oct] +65.6% -18.3%
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
-20% -15% -10% -5% 0% 5% 10% 15% 20%SPX 5d %chg*
NXSRVS 5d %chg*
Controlled downside risk
Strong reactivity in market downturn
*Overlapped data
34
Relative Performance of Rolling Volatility Strategy to SPX 1 year Puts
-150
-100
-50
0
50
100
150
Jan-11 May-11 Sep-11 Jan-12
Cum
ulat
ive
P &
L S
prea
d ( $
)
Spread: Natixis Rolling Vol Strategy - Puts
Net+ $ 61
Relative Performance of Rolling Vol Strategy to SPX 1 year Puts
-150
-100
-50
0
50
100
150
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12
Cum
ulat
ive
P &
L S
prea
d ( $
)
Spread: Natixis Rolling Vol Strategy - Puts
Net+ $ 164
Relative Performance to S&P Index Puts from Jan 2010 to Jan 2012
In Depth: Comparison to SPX 1y ATM Puts
All sources for tables & graphs: Natixis, Bloomberg as of May 31st 2012
Jan 2011-Jan 2012 Focus Comparison of Rolling Volatility Strategy to
SPX 1 year Puts
-150
-100
-50
0
50
100
Jan-11 May-11 Sep-11 Jan-12
P &
L (
$ )
Natixis Rolling VolStrategySPX 12M Puts ATM
Both strategies rebalanced quarterly to a $100 investment.
Comparison of Rolling Volatility Strategy to SPX 1 Year Puts
-150
-100
-50
0
50
100
Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12
P &
L (
$ )
Natixis Rolling VolStrategySPX 12M Puts ATM
Both strategies rebalanced quarterly to a $100 investment.
Strong Bleeding
35
Natixis Rolling Volatility Strategy Index SPX Index
Annualized Return +27.3% -1.4%
Best Month +67.9% +12.1%
Average Monthly +2.7% +0%
Max Drawdown -12.5% -9%
Annualized vol 29.3% 25.6%
% Winning Month 50.8% 60.6%
0%
100%
200%
300%
400%
500%
600%
Nov-06 Dec-07 Jan-09 Feb-10 Apr-11 May-12
NXS Rolling Volatility StrategyVXZ (SPVXMTR Index)
Flash Crash 2010
2008
S&P USA Downgrade
2011
Implementation Based on exchange-traded VIX Futures contracts Dynamic long/short allocation, always net positive volatility exposure Allocation between near term and far term maturities “Cost control” through monitoring the volatility yield cost Macro Behaviors Step-up or Spike-up behavior during crises and crashes Carry cost management in periods of stable volatility Strong sensitivity to equity without strike levels (contrast to put options) An alternative to timing the market or timing the hedge
Cumulative Performance - Data since Nov 2006
Natixis Rolling Volatility Strategy
Past performances are not reliable indicators for future results or performance. Variations may be material. All sources for tables & graphs: Natixis, Bloomberg as of May31st 2012
Return & Volatility - Data since Nov 2006 Monthly Performances - Data since Jan 2007
A staircase-like progression
2007 2008 2009 2010 2011 2012Jan -3.4% -0.3% 2.8% -1.4% -7.4% -4.6%Feb -3.0% 2.7% 7.5% 1.3% -1.5% 3.7%Mar -2.7% -0.3% 5.0% -0.7% -2.6% -8.6%Apr 1.0% -4.7% -5.1% 2.3% -2.4% 0.3%May 3.1% 6.1% -6.0% 11.8% -0.6% 7.1%Jun 3.6% -1.5% 0.4% 1.1% -0.4%Jul 15.4% -4.7% 4.1% -4.1% -4.3%Aug 8.0% 3.4% 3.9% 8.2% 32.1%Sep -7.9% 10.5% 1.4% -0.4% 20.7%Oct 6.4% 67.9% -1.7% -4.9% -16.3%Nov 8.2% 20.3% 2.1% -0.3% 5.4%Dec 2.6% -2.5% -1.1% -7.1% -6.4%
Annual Return 33.3% 118.0% 13.1% 4.4% 8.2% -2.8%
36
Disclaimer
This document is for discussion and information purposes only. It is highly confidential and it is the property of Natixis. It should not be transmitted to any person other than the original addressee(s) without the prior written consent of Natixis. This document is a marketing presentation. It does not constitute an independent investment research and has not been prepared in accordance with the legal requirements designed to promote the independence of investment research. Accordingly there are no prohibitions on dealing ahead of its dissemination. This document is not for distribution to retail clients. The distribution, possession or delivery of this document in, to or from certain jurisdictions may be restricted or prohibited by law. Recipients of this document are therefore required to ensure that they are aware of, and comply with, such restrictions or prohibitions. Neither Natixis, nor any of its affiliates, directors, employees, agents or advisers nor any other person accept any liability to anyone in relation to the distribution, possession or delivery of this document in, to or from any jurisdiction. This Document is only addressed to Investment Professionals as set out in Article 19 of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 or to persons regarded as professional investors under equivalent legislation under a jurisdiction of the European Economic Area. This document is communicated to each recipient for information purposes only and does not constitute a personalised recommendation. It is intended for general distribution and the products or services described herein do not take into account any specific investment objective, financial situation or particular need of any recipient. It should not be construed as an offer or solicitation with respect to the purchase, sale or subscription of any interest or security or as an undertaking by Natixis to complete a transaction subject to the terms and conditions described in this document or any other terms and conditions. Any guarantee, funding, interest or currency swap, underwriting or more generally any undertaking provided for in this document should be treated as preliminary only and is subject to a formal approval and written confirmation in accordance with Natixis’ current internal procedures. Natixis has neither verified nor independently analysed the information contained in this document. Accordingly, no representation, warranty or undertaking, express or implied, is made to recipients as to or in relation to the accuracy or completeness or otherwise of this document or as to the reasonableness of any assumption contained in this document. The information contained in this document does not take into account specific tax rules or accounting methods applicable to counterparties, clients or potential clients of Natixis. Therefore, Natixis shall not be liable for differences, if any, between its own valuations and those valuations provided by third parties; as such differences may arise as a result of the application and implementation of alternative accounting methods, tax rules or valuation models. Prices and margins are deemed to be indicative only and are subject to changes at any time depending on, inter alia, market conditions. Past performance and simulations of past performance are not a reliable indicator and therefore do not predict future results. The information contained in this document may include results of analyses from a quantitative model, which represent potential future events that may or may not be realised, and is not a complete analysis of every material fact representing any product. Information may be changed or withdrawn by Natixis at any time without notice. More generally, no responsibility is accepted by Natixis, nor by any of its holding companies, subsidiaries, associated undertakings or controlling persons, or any of their respective directors, officers, partners, employees, agents, representatives or advisors as to or in relation to the characteristics of this information. The statements, assumptions and opinions contained in this document may be forward-looking and are therefore subject to risks and uncertainties. Actual results and developments may differ materially from those expressed or implied, depending on a variety of factors and accordingly there can be no guarantee of the projected results, projections or developments. Natixis makes no representation or warranty, expressed or implied, as to the accomplishment of or reasonableness of, nor should any reliance be placed on any projections, targets, estimates or forecasts, or on the statements, assumptions and opinions expressed in this document. Nothing in this document should be relied on as a promise or guarantee as to the future. It should not be assumed that the information contained in this document will have been updated subsequent to the date stated on the front page of this document. In addition, the delivery of this document does not imply in any way an obligation on anyone to update the information contained herein at any time. Natixis shall not be liable for any financial loss or any decision taken on the basis of the information contained in this document and Natixis does not hold itself out as providing any advice, particularly in relation to investment services. In any event, you should request any internal and/or external advice that you consider necessary or desirable to obtain, including any financial, legal, tax or accounting advice, or any other specialist advice, in order to verify in particular that the investment(s) described in this document meets your investment objectives and constraints, and to obtain an independent valuation of such investment(s), and the risk factors and rewards. Natixis is authorised by the Autorité de Contrôle Prudentiel in France and subject to limited regulation by the Financial Services Authority in the United Kingdom. Details on the extent of our regulation by the Financial Services Authority are available from us on request. This document is not intended for distribution in the United States, or to any US person, or in Canada, Australia, the Republic of South Africa or Japan.