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DEFENSIVE CURRENCY ALPHA

DEFENSIVE CURRENCY ALPHA. February 28, 2013. Ulf J. Lindahl Chief Executive Officer www.agbisset.com. A.G. Bisset Associates. C U R R E N C Y R E S E A R C H & I N V E S T M E N T.

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DEFENSIVE CURRENCY ALPHA

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  1. DEFENSIVE CURRENCY ALPHA February 28, 2013 Ulf J. Lindahl Chief Executive Officer www.agbisset.com

  2. A.G. Bisset Associates C U R R E N C Y R E S E A R C H & I N V E S T M E N T Managing Currency Programs for Trusts, Endowments, Foundations, Pension Funds and Family Offices in North America and Europe • Systematic, Statistically-Driven Momentum-Based Investment Strategy • 30 Years of Advisory and Currency Risk Management • 24-Year Track Record in Currency Overlay • 10-Year Track Record in Defensive Currency Alpha • Products • Defensive Currency Alpha • Active Currency Hedging (Overlay – Currency Risk Reduction) • Treasury Advisory Service

  3. What is Defensive Currency Alpha? • Most investment portfolios have a large allocation to equities that results in a significant exposure to bear market and period-specific losses • Investments in Alternative Asset Classes and Hedge Funds have provided fewer diversification benefits than anticipated • Correlation between alternatives and equities increases in periods of stress • Currencies can provide enhanced diversification and reduced risk with returns that can be negatively correlated with equities in periods of stress • Defensive Currency Alpha are strategies based on momentum and systematic trend-following that mitigate “tail risk” by aligning currency positions with short-term price-trends in currenciesto generate positive returns • Positive returns can be generated whether equities are rising or falling

  4. Benefits of Defensive Currency Alpha Adding currency to an investment portfolio can provide strong positive returns that reduce losses when equities decline while adding return when equities rise Currency returns are competitive with fixed income when interest rates are low Live from Sep 2012. Gross Pro-Forma performance previously. Past performance is not indicative of future performance. Pro-Forma results have limitations.

  5. Correlations with S&P 500 Index Fixed Income and Alternative Asset Classes generally failed to provide protection during the Financial Crisis in 2008 when equities dropped Hedge Funds have been more correlated to equities than generally anticipated Live from Sep 2012. Gross Pro-Forma performance previously. Past performance is not indicative of future performance. Pro-Forma results have limitations.

  6. Typical Currency Strategies Strategies that exploit momentum to align currency positions with short-term price-trends most reliably provide returns that are negatively correlated with equities in times of market stress TREND Momentum based VALUE Fundamentally based CARRY Interest rate based Buy“undervalued” currencies Sell “overvalued” currencies Invest in high interest rate currencies Borrow in low interest rate currencies Long in currencies with positive momentum Short in currencies with negative momentum

  7. Correlations with S&P 500 Index Negative Correlation is Important Characteristic of Defensive Currency Alpha NEGATIVE CORRELATION TOO HIGH OPTIMAL PROFILE DEFENSIVE ALPHA Source: DB Select

  8. Academic Research Persistence of price-trends and momentum can be exploited Explaining the Returns of Active Currency Managers Sam Nasypbek, Scheherazade S. Rehman 2011, Bank for International Settlements Working Papers No. 58, 211-248 Currency momentum strategies provide diversification in times of extreme stress Portfolio of Risk Premia: A New Approach to Diversification Remy Briand, MSCI Barra, Frank Nielsen, MSCI Inc., Dan Stefek, MSCI Inc. 2009, MSCI Barra Research Paper No. 2009-01 Technical currency trading models have been consistently profitable and have provided a valuable source of risk adjusted returns Can Currency Movements Be Forecasted? Richard M. Levich, Professor of Finance, New York University - Stern School of Business 1999, AIMR Conference Proceedings: Currency Risk in Investment Portfolios Currency managers deserve a place in portfolios as alpha generators Hunting for Alpha Hunters the Currency Jungle Momtchil Pojarliev, CFA Richard M. Levich, Professor of Finance, New York University - Stern School of Business 2012, Accessed August 15, 2012 at http://people.stern.nyu.edu/rlevich/research.html

  9. Risk & Return Distribution of monthly returns of S&P 500 Index (2002-2012)

  10. Risk & Return Typical characteristic of a momentum / trend-following currency strategy is a positively skewed return distribution: “good volatility” Alpha live from Sep 2012. Gross Pro-Forma performance previously. Past performance is not indicative of future performance. Pro-Forma results have limitations.

  11. Diversifying Traditional 60/40 Portfolio Defensive Currency Alpha on 1/3 of the S&P 500 portion of a traditional 60/40 portfolio increases its total return without increasing overall risk Live from Sep 2012. Gross Pro-Forma performance previously. Past performance is not indicative of future performance. Pro-Forma results have limitations.

  12. Summary Defensive Currency Alpha • Mitigates “Tail Risk” • Tail Risk mitigation is becoming increasingly important as equity prices climb and the risk of interest rates starting to rise increases with time • Defensive Currency Alpha can provide strong positive returns when equities decline while contributing positive returns when they rise and fixed income prices decline • Defensive Currency Alpha can provide superior diversification compared to most other asset classes - most notably during times of market stress when it is most needed • Defensive Currency Alpha is negatively correlated to declines in equities and uncorrelated overall

  13. Disclosures Past performance is not indicative of future results. A.G. Bisset Associates, LLC is registered with the SEC as an Investment Adviser. A.G. Bisset maintains a complete list and description of performance composites that are available upon request. The management described herein is subject to normal market fluctuations and other risks inherent in managing securities or other instruments. There can be no assurances that any gains will occur. Gains and losses may occur. There can be no guarantee that the investment management objectives described herein will be achieved. Performance record reconstructed based on live model signals used in management of live products with the addition of evolving strategy enhancements applied back in time. Gross performance is pro-forma before live management began in September 2012. This document has not been registered with or approved by any governmental authority or other financial regulatory organization. Additional information regarding policies for calculating and reporting returns is available upon request. Additional information is available at www.agbisset.com. A.G. Bisset Associates, LLC 71 Rowayton Avenue Rowayton, CT 06853 USA

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