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PERFORMANCE ATTRIBUTION REPORT 29 April 2011
Discretionary Global Macro
The investment objective of the Fund is to achieve capital appreciation, whilst limiting risk of loss, by investing globally long and short mainly in quoted securities, government bonds and currencies, but also in commodities and other derivative instruments.
Monthly and Yearly Performance % (€ A Shares net of fees)
Year 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 +5.2 +4.0 +2.4 +12.7 +0.7 +5.5 +1.9 +3.7 -1.1 -8.1 -1.0 +9.7 -8.2 +1.7 +18.0 +3.7 +5.2 -1.0 -4.6 +4.6 -2.5 -0.8 -2.9 -15.6 -2.1 -0.2 -0.3 +8.8 -4.9 -0.1 +3.6 +0.7 -2.7 -5.4 -0.5 +0.8 +16.2 -0.9 -4.8 -5.4 +1.8 -3.9 -0.9 +1.7 +1.9 -1.7 +3.5 +3.6 +3.7 +2.4 -1.4 +2.5 +1.8 -0.2 +0.0 -5.9 -1.0 -9.1 -1.7 +0.6 +4.2 +0.5 +4.2 -2.1 -6.4 -1.7 +0.9 +1.6 Jan Feb Mar Apr May Jun Jul Aug Sep +0.0 +7.8 +3.4 +8.5 +2.2 +1.8 -5.7 -0.1 -3.1 Oct -4.8 +1.9 +5.7 -7.0 -2.1 -1.8 +49.8 -1.9 -1.9 Nov -0.1 -3.7 +1.7 -4.8 +0.9 -3.4 +2.9 +3.0 -4.3
AUM: $240, 820, 000
Dec +0.8 +12.4 -3.0 +5.9 -0.6 +7.5 +0.4 -4.0 -2.1 Year -4.2 +49.9 +8.0 +14.2 -3.7 +1.6 +31.2 -8.0 +2.7 -1.6 Source: Daiwa. Calculation on NAV basis.
Fund Performance Since Inception Fund
Equity (Net) Carry Interest Rates CDS Currency Commodity
HFR Macro Index
200 175 150
-1.5% -1.0% -0.5% 0.0% 0.5% 1.0% 1.5% 2.0% 2.5%
125 100 75
*HFR Macro Index in USD – Assumes constituent funds performance is fully hedged. Bloomberg Ticker: HFRXM Index. Past performance is not a guide to future returns.
Asset Allocation Summary (% NAV)
Interest Rate Futures* Interest Rate Options* Long Equity* Short Equity* CDS* Commodity* Gov Bonds Corp Bonds FX Options* FX (Pegged) IRS DV01 (bps)**** Outright Swaps Swap Curve FRA/OIS Spreads EUR 2.9 GBP 3.1 USD -1.2 3.1 JPY 5.2 13.1 5.2 24.9 -9.6 4.5 5.4 2.7 0.4 1.8 48.8 AUD 0.3 NZD 0.9 -
CDS Position Breakdown Summary CDS Payout Profile
% 20 15 10 5 0 -5 Ave. Spread Notional Exposure Total CDS 195
Assumes liquidation of portfolio at 2.5yr spread levels in 1 years time
Annual Carry -1.3
CV01 (bps)* 7.2
Ave. Life 3.4yrs
* Currency, equity and commodity include listed and OTC derivatives, cash or futures on a net delta basis. • Interest rate options figure represents net option premium/interest rate futures are shown on a 10yr adjusted net delta basis. • CDS figure represents max loss. • DV01 figure represents basis point contribution for a 1bp rise/steepening/widening of the underlying rate/curve/spread.
* CV01 figure represents basis point contribution for a 1bp rise in the weighted average credit spread of the portfolio.
E . to imagine things which are not really there. The central bank raised rates by a quarter-point. this is not happening.4% 1.00 1. Accepting absurdity? I was reading something recently about the Nobel Prize winner Richard Feynman that made me think that money management was perhaps similar to physics in that you advance by accepting absurdities.2% 1. the Sterling swaps book contributed half of this. In practice the pattern of consumption changes with less spent on discretionary items. By category.00 2. But it was a better month for the central bank that “gets it”.0% 0. And yet rate hike expectations have moderated (chart 1 again).8% 1. as in fiction.50 Expected Interest Rate 2. The history of physics. he claimed. To most it is simply absurd that rates will not rise. but just to comprehend those which are ". We expect their economies to slow in due course.The Eclectica Fund PERFORMANCE ATTRIBUTION REPORT What happened in April? 29 April of globalisation (aka QE2) continued to work its way through the economic system. Chart 1: Distribution of expectations where 3M GBP LIBOR will be on 21/09/2011 2.8% 0. But today. The Asian mercantilists now have The Fed's rejection 2011 domestic price inflation to contend with and are raising rates.6% 0. with higher credit standards and the private sector repaying loans faster than the banks are willing to grant new credit. inflation is now running at twice the Bank’s target and the core rate is at its highest since the series began in 1997. The most important price is not represented.6% Expectation Weights 1. Should households maintain their consumption of those goods and services which are presently the subject of price inflation they quickly discover that they have less to spend on other outlays.50 1. represents the missing two-thirds. the Fund's interest rate positions were the most profitable with a gain of 214bps for the month. Our obsession with CPI data is that it provides a causal explanation for the periodic bouts of general price inflation that we have observed through history (see chart 2).00 0. Again. British economic data of late has been an unqualified endorsement of the Bank’s premise that this economic upswing will prove less vigorous for highly indebted nations and that contractionary fiscal policy should take precedent over raising interest rates. and despite QE. Historically its willingness to extend credit has allowed a rise in relative prices to pass into a general bout of price inflation. But this only captures about one-third of all prices in a developed economy. the ECB is ignoring the perils of contractionary fiscal policy and is similarly engaged in raising rates to thwart higher QE2 induced commodity price inflation. or wages to you and me. The price of labour. is one of unbelievable ideas proving to be true.50 29/04/2011 31/03/2011 Source: Bloomberg Chart 2: UK Private Sector Nominal Wage Rate YoY % Change % 35 30 25 20 15 10 5 0 Mar-71 Mar-74 Mar-77 Mar-80 Mar-83 Mar-86 Mar-89 Mar-92 Mar-95 Mar-98 Mar-01 Mar-04 Mar-07 -5 Mar-10 But for all prices in the economy to expand at say 11% yoy Source: OECD / Bloomberg households and businesses require the necessary additional xxxxxxxx means to accommodate such an increase in their nominal outgoings.2% 0. The market was compelled to rein in its hawkish rate expectations (see chart 1). I recently presented at an investor conference during which a very prominent manager predicted that British prices would rise 11% next year. Long-short equity made 10 bps. "Our imagination is stretched to the utmost not. How did the Fund Perform? The Fund recorded a gain of 80bps. In Europe. we are not optimistic on the continent’s prospective growth prospects.0% 0. there was no dissent. British interest rates are a case in point.0% 1. Having adopted the Fed’s policy of quantitative monetary easing. FX cost 14bps and FRA/OIS spreads cost a further 25bps and the DVO1 exposure has been cut further from 11bps to 6bps. Presently. This was countered by a 1% loss from Japanese credit which takes this part of the book back to flat on the year. The culprit monetary is the banking system. Perhaps investors are imagining things which are not really there? The CPI data measures price changes for goods and services.4% 0. the environment is deflationary.
sesame seeds and spices.2% Source: Companies Data. and looking stretched relative to peers. not 20x.5% US: Current Crisis (To Date) 8. Bunge is and Cargill. Just don't call these items a "bung" from the Nigerian government whose respectability is of course beyond reproach. negative goodwill from acquisitions and non-cash "biological" gains.it’s eps growth they're going to get.5% written off following the “non-crisis” British banks have recession of 1989-93. it made them far more comparable to someone like Glencore. Back in 2007. values Glencore at 11x earnings which is a pretty sizeable discount to Olam’s 20x. In practice. One has to think that it is the presence of such unrecognised losses residing on the British banking ledger that is likely to stymie the present infatuation with mass inflation Stock Insight: Olam – Trees Don't Grow to the Sky This month's IPO of Glencore may attract some unwelcome scrutiny to the opaque world of Asian commodity trading and supply chain . Trading of grains and oilseeds is relatively transparent and carried out by agribusinesses such as ADM. as the chart below illustrates it is likely that there are just too many losses still to be recognised by the banking system. Loss Rates as a % of Risky Assets 0.0% UK 1989-1993 (Non-Crisis Recession) 8. transporting and trading lesser-known commodities like shea nuts. the latter putting the stock on 40x historic earnings as opposed to the 25x used by the sell-side. Indeed the combination of sourcing difficulties and information asymmetry can and does lead to very nice profit margins for businesses with the physical network to exploit such inefficiencies. Rarely is this strategy called by its true name: the acceptance of lower marginal rates of return.0% 20.The Eclectica Fund PERFORMANCE which has blunted REPORT So a condition of stasis prevailsATTRIBUTION the overall impact of QE and is unlikely to result in the elevated general inflation that many macro investors fear.0% 5. job done. The trouble with life is that it is often so difficult to stay popular. If it’s eps growth they want . E . 29 April 2011 reported cumulative loss rates of just 6. it’s a jack and the beanstalk business! The sell side analysts (with 14 buy recommendations. an impressive achievement recognised by the stock trading on 20x consensus earnings forecasts. However this necessitated a change in strategy whereby they would invest more in capital intensive upstream production and downstream processing rather than the asset-light supply chain business. This means that the forward P/E is probably at least 25x. Olam vowed to pull out all the stops in its quest for enduring investor satisfaction. As the trees grow they are reckoned to be more valuable to the bean counters.0% Synchronous (Nordic) Crisis 15. However. Maybe we should just stop there. 3 holds and 2 sells) adjust for some of these but not all. with 2009 revenues up fivefold since 2002. These are often produced exclusively in obscure parts of Africa or South East Asia.0% Japan 20.0% 15.8% 10% "Typical" Single Country Crisis 10. Alas some $95m out of last year’s $170m came from ‘export incentives and subsidies’. Arbuthnot But is this due recognition of a job well done or a temporary leave of absence from Mr Market's renowned laws of reasoning? Is Olam fully valued or overpriced? We think the latter. our analysis suggests that more realistic figures are $100m and $170m.0% 10. The latter is my favourite and derives apparently quite legitimately from the accounting treatment of all those little acorns the group planted in its Asian almond and palm oil plantations several years back. The Singapore listed Olam has historically grown fast. the higher the margins.2% on risk assets versus the 8. This shift was no doubt in part driven by the fact that you can only grow so big trading shea nuts. with grains attracting EBIT margins of 1-3% and nuts and spices up to 10%. which may be part of doing business in Africa but certainly should not be valued by the stock market on anything like 20x P/E (never mind 40x). who have a presence throughout the value chain. close analysis of the Olam annual report reveals a notable change in the quality of earnings since the new strategy in 2007/08. We have no problem with this. and have no futures market. cashews. But we are short a company which is engaged in sourcing. with large percentages of stated profits coming from items such as revaluation of their own convertible debt.0% UK Big 4: Current Crisis (To Date) 6. Furthermore. As a rule of thumb. management. the more obscure the product. taking historical profit numbers (in Singapore dollars) for 2009 and 2010 down from the reported $252m and $372m to $182m and $272m respectively. But putting the trading business on a P/E of about 15x (in-line with Singapore-listed metals trader Noble) and the rest in-line with mining groups like Rio Tinto (on a P/E of 7x).
This document is being issued by EAM to and/or is directed at persons who are both (a) professional clients or eligible counterparties for the purposes of the Financial Services Authority's Conduct of Business Sourcebook ("COBS") and (b) of a kind to whom the Funds may lawfully be promoted by a person authorised under the Act (an "authorised person") by virtue of Section 238(5) of the Financial Services and Markets Act 2000 (the "Act") Chapter 4. No recipient of this document may distribute it to any other person. The value of all investments and the income derived therefrom can decrease as well as increase. any of the funds managed by EAM or their respective directors. This does not exclude or restrict any duty or liability that EAM has to its customers under the UK regulatory system. which is authorised and regulated by the Financial Services Authority. This document does not constitute or form part of any offer to issue or sell. The information contained in this document relates to the promotion of shares in one or more unrecognised collective investment schemes managed by EAM (the "Funds"). Recipients of this document who intend to apply for securities are reminded that any such application may be made solely on the basis of the information and opinions contained in the relevant prospectus which may be different from the information and opinions contained in this document. or be relied on in connection with. London. OC312442.12 of COBS. the information or opinions contained in this document by any of EAM. Side letters: Some hedge fund investors with significant interests in the fund receive periodic updates on the portfolio holdings. express or implied.000 or equivalent in £/$100. The promotion of the Funds and the distribution of this document in the United Kingdom is restricted by law.6 E . is given as to the accuracy or completeness of. Historic performance is not a guide to future performance. All charts are sourced from Eclectica Asset Management LLP.000 Accumulated Irish Dealing Email AMC ‘A’ Shares AMC ‘B’ & ‘C’ Shares Performance Fee Exit Fee 1st & 15th of each month 1st of each month 7 days before dealing day (+353) 1 603 9921 (+353) 1 647 5830 daiwaSHSdealing@daiwagas. No representation. and no liability is accepted for. This may be partly due to exchange rate fluctuations in investments that have an exposure to currencies other than the base currency of the relevant fund. registered office at 6 Salem Road. any securities mentioned herein nor shall it or the fact of its distribution form the basis of. Registration No. or any solicitation of any offer to subscribe or purchase. warranty or undertaking. © 2005-11 Eclectica Asset Management LLP. Costs & Redemption Structure Eclectica Asset Management LLP Dealing ‘A’ Shares Daiwa Europe Fund Managers Ireland Ltd Dealing ‘B’ & ‘C’ Shares Hugh Hendry & Espen Baardsen Dealing Notice Cayman Islands OEIC within a Master Feeder structure Dealing Line 30 September 2002 Dealing Fax €/£/$ €100. W2 4BU.The Eclectica Fund PERFORMANCE ATTRIBUTION REPORT 29 April 2011 Fed QE High sovereign debt restricts fiscal stimulus US rejects globalisation Long Interest Rate Receivers Zero lower bound restricts monetary policy US rejects China gaming FX US and Germany slow US seeks to create domestic price inflation overseas EM growth slows Debtor countries raise rates despite high unemployment a la 1931 Creditor countries tighten monetary policy US seeks to revalue China et al FX real v nominal prices Long Equities & Commodities We Are Here Fund Information Fund Details Investment Manager Administrator Fund Managers Structure Inception Date Share Classes Minimum Investment Dividends Stock Exchange Listing Fees.com This document is being issued by Eclectica Asset Management LLP ("EAM").com 1% 2% 20% 1% exit fee on redemptions within 12 months Service Providers Custodian/Prime Broker Custodian Auditors Eclectica Asset Management: Investor Relations 1) Morgan Stanley and Co Int Plc Telephone 2) Credit Suisse Securities (Europe) Ltd Email Daiwa Securities Trust & Banking (Europe Plc) Deloitte & Touche +44 (0)20 7792 6400 info@eclectica-am. any contract therefor.
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