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Aviva Morley Absolute TAA Fund. Paul Moody Head of Investment Development Milan, 8 November 2007. This document is for professional advisers and market counterparty or intermediate customers only. The content is not approved for use with private/retail investors or pension scheme members.

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aviva morley absolute taa fund

Aviva Morley Absolute TAA Fund

Paul Moody

Head of Investment Development

Milan, 8 November 2007

slide2
This document is for professional advisers and market counterparty or intermediate customers only. The content is not approved for use with private/retail investors or pension scheme members.
agenda
Agenda
  • Introduction to Morley
  • Introduction to GTAA
  • Investment Philosophy and Process
  • Risk Control
  • Fund Performance
  • Summary
part of the worldwide aviva group
World’s fifth-largest insurance group*

Largest in the UK

Standard and Poors A+ stable rating**

59,000 employees

40 million customers worldwide

Part of the worldwide Aviva Group

Aviva UK

UK Fund Management

Aviva International

Morley Fund Management Group Ltd

Aviva FundServices SA

(Luxembourg)

PortfolioPartners Ltd

(Melbourne)

Hibernian InvestmentManagement Ltd

(Dublin)

Morley Fund Management Limited

(London)

Morley Fund Management

International Ltd

(Boston)

CUIM Polska SA

(Warsaw)

*Based on gross worldwide premiums for the year ended 31 December 2006

**Source: Standard and Poors. “An insurer rated ‘A’ has STRONG financial security characteristics, but is somewhat more likely to be affected by adverse business conditions than are insurers with higher ratings.” http://www2.standardandpoors.com/portal/site/sp/en/eu/page.article/2,1,5,0,1021558138686.html

critical mass in all asset classes
Critical mass in all asset classes
  • Assets under management of billion across the full spectrum of asset classes
  • Experience stretches across wide range of client types
  • Largest UK based active manager
  • Employs over 700 people, including 232 investment professionals

Active asset allocation overlay on €120bn

Aggregate assets managed €4bn

gtaa investment team
GTAA Investment team

1st Blue:White bold font

Chief Investment Officer Adrian Jarvis (Interim)

2nd Blue:White bold font

Head of Strategy and Multi Asset Funds

Steve Cleal

3rd Blue:

Morley boldblue font

Senior Economist

John Ip

(International)

Asset Allocation Specialist

Hassan Johaadien

Senior Economist

Stewart Robertson

(UK & Europe)

Strategic Asset Allocation Specialist

Mirko Cardinale

Fund manager

Jonathan Abrahams

Portfolio Analyst

Nichola Guinn

Asset Allocation Specialist

Sergio Ferreira

TAA Modelling & Performance Analyst

Niral Shukla

Quant Analyst

Jing Yiang

Quant Analyst

tba

Fund Manager

Carmen Magness

4th: Morley bold blue font

0.75 pt outline

what is tactical asset allocation
What is Tactical Asset Allocation?
  • Exploits inefficiencies in asset prices resulting from:
    • Investor sentiment, such as excessive optimism or pessimism
    • Structural anomalies such as legislation, tax or market habit
    • Non profit-maximising participants

Equity MarketSelection

Asset Class Selection

Bond MarketSelection

Currency Selection

A diversified source of Alpha

A diversified source of Alpha

morley s strength in asset allocation
Morley’s strength in asset allocation
  • Experience – Asset allocation team and process in place since 1999. Responsible for €120bn of assets
  • Track record* - Consistent out performance of the benchmark over the last eight years, with no down years. Information ratio of 1.03 (refers to MPPL Balanced Managed Fund overlay Q498 to Q207).
  • Strong investment process – Combines rigorous fundamental analysis with skills of experienced fund management team and independent risk management
  • Consistency – Scenario based analysis combined with multiple diversified, relatively small positions for consistent performance in all economic environments

Source Morley

* Decemeber 1998- December 2006

investment process overview
Investment process – overview

1st Blue:White bold font

2nd Blue:White bold font

3rd Blue:

Morley boldblue font

4th: Morley bold blue font

0.75 pt outline

Strapline, Height: 1.6cm Width: 23.16cm

We aim to deliver consistent excess returns

stage 1 economic scenario analysis
Stage 1: Economic scenario analysis
  • Economists and strategists meet weekly to discuss output of economic analysis to derive scenarios of possible economic outcomes
  • Considering several possible scenarios provides greater consistency of returns irrespective of economic environment
    • Synthesis of regional economic outlooks
    • Capture uncertainties around the central case
    • Scenarios chosen based on probability and significance for asset prices
    • Quantified for impact on interest rates, economic growth, corporate profits etc.

Central View

Economic Rebound

55%

Sub-Trend Growth

20%

Recession

25%

Source: Morley Fund Management As at 24th September 2007

Output: Scenarios with projections for growth, inflation, rates, profits

stage 2 forecasting returns
Stage 2: Forecasting returns
  • Economic forecasts are used to generate projections for assets under each scenario
  • Bond forecasts are derived from yield movements and duration
  • Equity forecasts are driven by
    • Current dividend yield
    • Earnings growth forecasts
    • Predicted equity reratings
  • Currency forecasts are derived using a scorecard approach. Variables include:-
    • Value measures (PPP)
    • Cyclical indicators
    • Fiscal and monetary policy
    • Momentum and market positioning

Output: A set of asset return forecasts for each scenario

stage 3 optimal portfolio analysis
Stage 3: Optimal portfolio analysis
  • The asset return forecasts generated for the central scenario are input into the optimiser to generate the ‘best’ portfolio i.e. that combination of assets that maximises the expected return for a given level of risk
  • The optimiser incorporates a boot strap approach.
  • Rather than use a single time period for estimating the covariance matrix, history is divided into numerous discrete periods. This generates solutions that are robust to changing regimes
  • This process is repeated for each scenario under consideration, giving a separate optimal portfolio for each scenario
  • A review of the returns that would be generated by each optimal portfolio under each scenario is produced. This is in the form of a matrix of possible outcomes.

Output: An optimal portfolio for each scenario

stage 4 portfolio selection
Stage 4: Portfolio selection
  • Morley’s Asset Allocation Committee is a small team responsible for selecting the template for all Morley’s TAA clients
  • The committee draw on their experience to consider, challenge and develop the internal research, in particular the scenarios and candidate portfolios
  • In deciding the template, the AAC seek:
    • To generate strong returns under the central scenario
    • To deliver respectable returns under alternative scenarios
    • A broad balance of return over time from beta, markets and currency

Morley’s Asset Allocation Committee

Chief Investment Officer

(interim)

Adrian Jarvis

18 years experience

Asset Allocation Specialist

Hassan Johaadien

12 years experience

Head of Strategy and Multi Asset Funds

Steve Cleal

19 years experience

Output: A robust set of asset positions

stage 5 implementation
Stage 5: Implementation
  • The success of the TAA process is critically dependent on the successful implementation of the model portfolio across client mandates
  • A team of experienced portfolio managers monitor fund positions and initiate derivatives trades where appropriate
  • Trade execution is undertaken by a separate, experienced team with a long history of dealing significant volumes in global derivatives market
  • In 2006, €135bn of futures were executed
  • Morley’s market presence gives it access to timely market intelligence on trading conditions
  • Regular contact with the largest investment banks ensures trades are executed in the most cost effective manner
  • Daily risk reports enhance the understanding of the likely behaviour of the portfolio under a variety of different market outcomes

Output: A fund designed to generate the alpha target

stage 5 implementation october 2007
Stage 5: Implementation October 2007

Implementation for ATAA Fund Libor +20% p.a. GTAA target

Relative risk-adjusted sizeof active positions

risk management
Risk management
  • Independent Risk Team measures:
    • Value at Risk (VAR) daily using internal proprietary model
    • Volatility calculated using unweighted covariance matrix approach
    • Parallel analyses using two sets of historical return data
    • Scenario analysis to analyse impact of extreme events (Asian crisis, Black Monday etc.)
    • The contribution to risk from each individual asset is quantified based on its interaction (covariance) with other portfolio assets
    • Daily monitoring and formal monthly meeting with fund managers

Monthly VAR, Aviva Morley Absolute TAA Fund

Source: Morley, as at 28 September 07

performance update absolute taa fund performance since launch

Performance %

  • Since launch (Jan 06)
  • 25.76
  • Sharpe Ratio
  • Since launch (Jan 06)
  • 1.09
  • Annualised Volatility (%)
  • Since launch (Jan 06)
  • 11.43

Source: Lipper/Morley, as at 01-Oct-07

Performance update – Absolute TAA fund performance since launch
important information 1
Important Information (1)
  • This document is for Investment Professionals only. It is not for Private/Retail investors.
  • Except where stated as otherwise, the source of all information is Morley as at 31 October 2007.
  • Any opinions expressed are based on the internal forecasts of Morley and they should not be relied upon as indicating any guarantee of return from an investment managed by Morley. No part of this document is intended to constitute advice or recommendations of any nature.
  • Performance figures sourced from Lipper Hindsight and illustrated on a bid to bid, gross income reinvested basis for the I share class in the currency shown. Other information sourced from Morley. Past performance is not a guide to the future. The value of an investment in the fund can go down as well as up and can fluctuate in response to changes in exchange rates. A re-structure of the funds took place on 20 November 2006 that changed some of the fund names, objectives and charges of the Aviva Morley SICAV. Please read the current Prospectus for full details of the current fund range before investing.
  • Past performance is not a guide to the future.
  • The distribution and offering of shares may be restricted by law in certain jurisdictions. This document should not be taken as a recommendation or offer by anyone in any jurisdiction in which such an offer is not authorised or to any person to whom it is unlawful to make such an offer or solicitation.
  • For Germany: Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV are available free of charge from Morley Fund Management Limited, Zweigniederlassung Deutschland - An der Welle 4,60322 Frankfurt am Main, Frankfurt am Main, Deutschlandor from Aviva Fund Services, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708.
  • For Austria: The "Raiffeisen Zentralbank Österreich AG", Am Stadtpark 9, 1030 Vienna, has been appointed by the Company as the paying agent within the meaning of § 34 InvFG. Accordingly, the redemption of shares can be made via the "Raiffeisen Zentralbank Österreich AG", Am Stadtpark 9, 1030 Vienna. The prospectus, the articles of association, the last annual report and the semi-annual report, once published, are available at the office of the "Raiffeisen Zentralbank Österreich AG", Am Stadtpark 9, 1030 Vienna or from Aviva Fund Services, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708.
important information 2
Important Information (2)
  • For Spain: Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV which are approved by and registered with CSSF in Luxembourg and CNMV in Spain are available free of charge from Morley Fund Management Limited, Sucursal en España, Calle Pinar 5, 28006 Madrid, España or from Aviva Fund Services, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708.
  • For Switzerland: Fortis Foreign Fund Services AG, Rennweg 57, 8023 Zurich was authorised by the Federal Banking Commission as Swiss representative of the Fund and acts also as paying agent. Copies of the Full and Simplified Prospectus together with the Report and Accounts and articles of the SICAV are available free of charge from the head office of the Swiss representative, Morley Fund Management Limited, Zweigniederlassung Deutschland - An der Welle 4,60322 Frankfurt am Main, Frankfurt am Main, Deutschlandor from Aviva Fund Services, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708.
  • For Italy: Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV are available free of charge from Morley Fund Management Limited, Sede Secondaria di Milano, Corso Matteotti, 10, 20121 MI, Italia or from Aviva Fund Services, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708.
  • For Luxembourg: Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV are available free of charge from Aviva Fund Services, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708.
  • For UK: Copies of the Full and Simplified Prospectus together with the Report and Accounts of the SICAV are available free of charge from Morley Fund Management Limited, No. 1 Poultry, London EC2R 8EJ or from Aviva Fund Services, 34 avenue de la Liberté, 4th floor, L-1930 Luxembourg. R.C.S. Luxembourg B25708.
  • Morley is a business name of Morley Fund Management Limited, registered in England No. 1151805. Registered Office: No. 1 Poultry, London EC2R 8EJ. Authorised and regulated in the UK by the Financial Services Authority and a member of the Investment Management Association. Morley is also a business name of Morley Fund Services Limited and Morley Pooled Pensions Limited. All are Aviva companies.
  • Contact us at Morley Fund Management Limited, No. 1 Poultry, London EC2R 8EJ
  • MFM 07/942