Harnessing volatility to enhance returns General enquiries - PowerPoint PPT Presentation

Harnessing volatility to enhance returns General enquiries info@mulvaneycapital.com Telephone +44 (0) 20 7429 0600 Address Mulvaney Capital Management 5 th Floor, Cannongate House 62-64 Cannon Street London EC4N 6AE Performance data effective as at 31 st December 2014

OVERVIEW 1. Introduction : key facts, our edge and returns 3 - 6 2. Investment process : portfolio construction and trading 7 – 8 3. Objectives and returns : optionality, return analysis and diversification 9 – 14 4. Infrastructure: governance, support and experience 15 – 17 5. Terms 18 2

KEY FACTS • 100% systematic long-term trend follower. • Diverse global portfolio of agricultural, energy, metal and financial futures. • 15 year track record with an unchanged program since inception. • Average annualised return: 16.67%. • AUM: $218 million (January 2015). • Non-correlation to equities and most alternative asset classes. • Award winning program which is recognized in the top CTA rankings. WINNER BEST BEAR MARKET MANAGER (HF INDEX) WINNER BEST BEAR MARKET MANAGER (S&P 500) NOMINATED BEST RETURN (HIGH VOLATILITY – DIVERSIFIED ) AWARD WINNER 2014 $100-299M AUM CATEGORY Best Managed Futures CTA Past performance is not indicative of future results. * Please refer to the note 1 in the Important Information at the end of the presentation. 3 3

OUR EDGE Our approach to trading is founded on the following: 1. Returns in financial and commodity markets are not normally distributed. Extreme events are few in number but great in magnitude.  We expect the unexpected. Our program was built to be robust and general, and seeks to capture and exploit black swan or fat tail events. 2. Effective money management.  Losing trades are cut effectively. 3. Long time horizon.  Winning positions are allowed to run with no set target for price, profit or standard deviation.  In this way we can harness volatility to maximise potential returns. 4. We provide effective diversification by being more heavily weighted towards commodities than most c competitors. “The reality is that markets are not always efficient. In particular, they seem to adjust gradually rather than instantaneously to changes in fundamentals. We call these gradual adjustments trends” . Paul Mulvaney 4

LONG TRACK RECORD Source: Mulvaney Capital/BarclayHedge/Bloomberg Tech Crash Bull Market Credit Crisis Bull Market VAMI +923.86% Net Return Mulvaney 800 400 +106.84% Total Return S&P 500 Gross Dividend * 200 +108.31% Net Return BTOP 50 Managed Futures Index * 100 50 Program Correlation S&P500* Barclay Global Bond BTOP 50 Over Track Record -0.1844 0.0464 0.6551 Last 12 Months -0.0619 -0.7008 0.5880 Past performance is not indicative of future results. Performance between May 1999 and July 2001 is that of a managed account. Performance from March 2002 is that of the US$ share class of The Mulvaney Global Markets Fund. Ltd. There is no actual performance data between July 2001 and March 2002 and therefore it has not been included. 5 5 * Please refer to note 2 in the Important Information at the end of the presentation.

DIVERSE SOURCES OF RETURNS Top winners and losers by market, gross returns 12% 2014 Net Return 10.21% 10% 67.36% 8% 6.77% 6.63% 2014 5.48% 5.33% 5.32% 5.31% 6% 5.12% 4.49% 4.47% 3.75% 3.47% 3.40% 4% 3.14% 2.78% 2.75% 2.52% 2% 0% -2% -2.34% -2.70% -2.78% -4% Gasoil Japanese Japanese Live Cattle Euro Bund Euro Brent Sugar Cocoa Cotton Swiss WTI Crude Long Gilt Nasdaq Australian US Long Mexican Gold Topix Orange Bond Yen Crude Oil Franc Oil 100 e-Mini Dollar Bond Peso Juice 25% 23.41% 2013 Net Return 43.12% 20% 15.00% 13.69% 15% 2013 10% 8.29% 7.83% 6.93% 5.56% 4.81% 5% 2.80% 0% -1.88% -2.17% -2.21% -2.26% -2.38% -2.45% -5% -2.54% -3.45% -3.47% -4.13% -4.94% -10% Japanese Topix Nikkei 225S&P 500 e- Coffee Silver Nasdaq Gold Soybeal Canadian Euribor Live Cattle US Long Euro-Bund Long Gilt Soymeal Orange Gasoil Cotton Natural Yen Mini 100 e-Mini Oil Dollar Bond Juice Gas Past performance is not indicative of future results. 6

DISCIPLINED AND STABLE INVESTMENT PROCESS 45 Markets traded Average number of positions held: 39 Maximum positions held: 45 Minimum positions held: 30 Daily price data for all markets is analysed against historical data Buy / Sell signals are identified Risk Management liquidity, correlation and volatility filters are applied Trades are executed to rebalance portfolio daily Optimal portfolio is determined Weighting as at 31 st December 2014 Softs Currencies 15% 24% Metals 14% Livestock Interest 4% rates Grains 21% 2% Energy Stock indices 11% 9% 7 * Weighting based on exchange margin requirement

TRADING ENTRY AND EXIT We use a channel breakout trading technique ILLUSTRATIVE EXAMPLE – EXCEPTIONAL WINNING TRADE ILLUSTRATIVE EXAMPLE – LOSING TRADE Full position Exit position when stop loss Number of contracts Number of contracts reached Price Price Open position at Build position channel breakout incrementally as trend develops Trailing stop loss Time Periods Time Periods • 80% * of our trades are losing trades. • Losing trades are cut quickly, with the system initially risking only a small percentage of account equity. • For winning trades, price volatility tends to increase as the trend develops. Widening stop losses allow for this. • There are no price or profit targets: positions are exited only if the price penetrates the active stop loss. 8 * As at 31 st December 2012

LONG OPTIONALITY Profit Run Profits/Cut Losses: Long Optionality Run Profits: Cut Losses: The tails we are trying to capture are We truncate the downside probability of uncertain large magnitude. ENTRY distribution by trailing stop-loss orders behind the market. Thus we do not exit profitable trades at pre-determined and (more than likely) premature objectives. STOP Exit Price BY CONTRAST, numerous studies have concluded that investors typically exhibit eagerness to realise gains and reluctance to crystallise losses: the disposition effect. Loss 9

DISTRIBUTION OF RETURNS Our investment and trading processes capture right hand tail returns ILLUSTRATIVE EXAMPLE Frequency of Long-term Trend Follower trades Normal Distribution with same mean and standard deviation as illustrated Trend Follower Increasing profitability Losing trades 0 Winning trades • W ide stops on longer term trends allow for capture of right hand tail returns and “black swan” events. • Hence the majority of volatility from the Program is generated by winning trades. • The returns of long-term trend followers are not normally distributed. Therefore volatility cannot measure our risk. “ There are plenty of intuitive reasons for using volatility as a proxy for risk. Volatility is also nice because it’s a number, standard deviation or variance … .But volatility cannot deal with fat tails, with non-normal distributions … .. ” Peter L. Bernstein 10

DRAWDOWN • Drawdowns tend to occur when several trends end simultaneously, or during periods of non-trending markets. • No change to the strategy in drawdown. We do not constrain the recovery of the program. Drawdown Significant event/Program highlights Recovery (Peak to Valley) Prevailing ‘Risk On or Risk Off’ sentiment influenced by monetary policy 45.03% (Apr 11-Nov 12) 22 months • Program whip-sawed in commodity, currency and equity markets Onset of Credit Crisis 41.28% (Apr 06-Aug 07) 6 months • Program exited or reversed 86% of positions in July/August 2007 Greece crisis/stalling global recovery and food price appreciation in 2010 35.44% (Jan 09-Jul 10) 3 months • System reversed long equity and short food/agricultural positions. • Significant drawdowns have occurred at major market dislocations, and have typically been followed new and potentially profitable trends. • The program has generated returns in excess of 100% within a 12 month period on three separate occasions: Net Return Significant event/Program highlights 12 Month Period • Significant price rises in cotton and precious metals as well as a notable 119.39% Aug 10 – Apr 11 contribution from falling interest rates. • Gains from major bull and bear trends in commodities. Autumn equity 115.14% Dec 07-Nov 08 market collapse. • Strong gains in metals with copper making all time highs. Rising global 101.81% May 05-Apr 06 stock markets and bullish trends in soft commodity markets. 11 Past performance is not indicative of future results.