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:
PORTFOLIO «COMMODITY BASKET» 3
«COMMODITY BASKET»:
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»
«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
PORTFOLIO «COMMODITY BASKET» 5
«COMMODITY BASKET»:
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
PORTFOLIO «COMMODITY BASKET» 6
«COMMODITY BASKET»:
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
Source: Bloomberg, Rietumu Asset Management
PORTFOLIO «COMMODITY BASKET» 7
«COMMODITY BASKET»:
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
Source: Bloomberg, Rietumu Asset Management
PORTFOLIO «COMMODITY BASKET»
«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
PORTFOLIO «COMMODITY BASKET» 9
«COMMODITY BASKET»:
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.
PORTFOLIO «COMMODITY BASKET» 10
«COMMODITY BASKET»:
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.