SOLACTIVE EUROPEAN DEEP VALUE SELECT 50 INDEX Marketing C - PowerPoint PPT Presentation

SOLACTIVE EUROPEAN DEEP VALUE SELECT 50 INDEX Marketing C ommunication For professional clients only This document has been prepared for discussion purposes only and does not constitute an offer or a solicitation to engage in any trading strategy or the purchase or sale of any financial instrument CORPORATE & INSTITUTIONAL BANKING GLOBAL MARKETS MARCH 201 7

1 VALUE INVESTING March 2017 | 2

THE CONCEPT OF VALUE INVESTING (1/2) HOW IT STARTED BENJ AMIN GRAHAM (1894 1976): THE FATHER OF VALUE INVESTING LESSONS BY BENJAMIN GRAHAM Value Investing is a comprehensive investment philosophy that emphasises 1 the need to perform in-depth fundamental analysis , pursue long-term investment results, limit risk, and resist crowd psychology 2 Value Investors regard securities as a fractional ownership in the actual business, with an underlying value that does not depend on its share price Benjamin Graham was an economist and a professional investor. He began teaching the Value investment 3 These investors seek stocks they believe the market has undervalued. When a approach at Columbia Business School company is available on a discount to its intrinsic value (the one that is justified in 1928, which he refined through the by the facts: assets, earnings, dividends, etc.), it is suitable for investment various editions of his famous books. 4 Since intrinsic value is an elusive concept, one must invest with a margin of safety : a big enough discount to allow some room for error, imprecision, bad luck or the vicissitudes of the economy and the stock market investor's primary interest lies in acquiring and holding suitable securities at suitable prices. (Benjamin Graham) L.Dood, and Preface to the Sixth Edition by Seth A. Klaman. March 2017 | 3

THE CONCEPT OF VALUE INVESTING (2/2) DOES IT WORK? FOR BENJAMIN GRAHAM  A long track record and experience  Benjamin Graham started his investment career in 1914 and made it through the 1929-1932 Great Crash  From 1936 until he retired in 1956, his Graham-Newman Corp. 1 gained 20% annually , versus 12.2% for the stock market as a whole: one of the best long-term track records on Wall Street history 1 Modern equivalent of a closed-end mutual fund. FOR HIS STUDENTS  students have achieved impressive performances: Warren Buffett , Walter Schloss Bill Ruane , Tom Knapp and Amongst Ed Anderson , others: followed Sequoia Fund at Columbia Benjamin Manager, met were also Charles Business School , Graham lifelong friend Munger, Rick described him as courses at Warren Buffett disciples (9% Guerin, Stan the second most night at the at a Benjamin annual Perlmeter, influential person New York Graham outperformance etc. All very in his life after his own father Institute of Finance (8% investment seminar (7% over the S&P 500 successful (6.1% annual outperformance annual outperformance annual outperformance from 1968 to investors over the general stock over the S&P 500 Index over the S&P 500 Index 1983) market from 1976 to 2011) from 1956 to 1968) from 1970 to 1984) March 2017 | 4

2 THE SOLACTIVE EUROPEAN DEEP VALUE SELECT 50 INDEX March 2017 | 5

THE INDEX STRATEGY IN A NUTSHELL THE STRUCTURED SELECTION PROCESS THE STRATEGY SELECTS STOCKS OF EUROPEAN COMPANIES THAT AIM TO PROVIDE: Low volatility Strong and stable results over time By removing stocks with the By choosing robust companies highest volatilities in order to that demonstrate high standards enhance the risk/return profile in terms of Valuation, Solvency and Stability Long term replicability Stable source of income By selecting highly liquid stocks By selecting stocks that are expected to pay dividends in the that have proven their capacity for endurance and dependability coming month Currency Type of index Bloomberg code Reuters code Launch date EUR Price Return SOLEDVSP Index .SOLEDVSP 7th J uly 2015 A RIGOROUS INVESTMENT METHODOLOGY THAT AIMS TO SELECT SOUND COMPANIES, WHATEVER THE MARKET CONDITIONS March 2017 | 6

OVERVIEW OF THE SELECTION PROCESS OVERALL SELECTION PROCESS Geographical Universe European stocks 1000 stocks Liquidity 1 500 stocks Liquidity Filter 200+ stocks Valuation, Solvency Deep Value Filter & Stability Quantitative Dividend and Selection Volatility filtering Final composition 50 stocks Monthly EUR Equally weighted rebalancing Source: BNP Paribas, for illustrative proposes only. 1 Average daily volume observed at or above 10M over a 20 days period. March 2017 | 7

Step 1 - THE DEEP VALUE FIL TER (1/2) HOW IT WORKS: THE 3 FUNDAMENTAL FILTERS 1 1 2 3 VALUATION SOLVENCY STABILITY Is the price attractive Is the financial Are the earnings stable? enough compared to its revenues position solid?  Select companies able to and assets?  Debt charge must be generate profit in any market  Avoid overvalued names: a reasonable to avoid putting at condition: profits generated by reasonable price compared to stake the benefits: the company must be positive the benefits of the last 5 years financial expenses over the previous 10 years (Shiller PE 2 ) largely covered by their  Target companies that are able revenues  Select efficient business to reward investors in all  models: regularly posting solid Select companies able to market conditions: filter on the profits compared to accounting decrease and reimburse their dividends paid by the company debts: target companies with value and having an earnings in each of the previous 10 years yield high enough to justify a limited debt compared to their long term investment revenues 1 Please turn to slides 20 to 22 for more details. 2 Shiller Price Earnings, also called CAPE «Cyclically Adjusted Price Earnings», developed by Robert Shiller. A FUNDAMENTALS-BASED INVESTMENT METHODOLOGY March 2017 | 8

Step 1 - THE DEEP VALUE FIL TER (2/2) HOW IT WORKS: THE DEEP VALUE SCORE  A balanced but selective approach based on analyzing fundamentals according to three groups of criteria:  Valuation, Solvency and Stability  To move to the next step of the selection process, a company must comply with the following 3 constraints: (note that only companies with an average daily volume observed at or above 10M over a 20 days period appear on the Index calculator screens)  Deep Value Score 4  Valuation score 1  Solvency score 1 Non- Financial Financial Deep Shiller CAPE x Earning Past Past Valuation Solvency Earnings Stability Value Financial Interest EBITDA 3 PE P/B 1 Yield Dividends ROE 2 leverage Cover Growth Score Rexam PLC 1 1 0 2 1 1 - - 2 1 0 1 5 Munich Re AG 1 1 1 3 - - 1 0 1 1 1 2 6 BAE Systems PLC 0 0 1 1 1 1 - - 2 1 0 1 4 Compass Group PLC 1 1 0 2 1 1 - - 2 1 0 1 5 TeliaSonena AB 3 2 2 7 1 1 1 1 1 - - 1 1 Unilever PLC 0 0 1 1 1 1 - - 2 1 1 2 5 Roche Holding AG 0 0 1 1 1 1 - - 2 1 1 2 5 IMI PLC 1 1 0 2 1 1 - - 2 1 1 2 6 Standard Life PLC 1 1 0 2 - - 1 0 1 0 1 1 4 Wolters Kluwer 0 0 1 1 1 1 - - 2 1 1 2 5 ARM Holdings PLC 0 0 0 0 1 0 - - 1 1 0 1 2 SSE PLC 2 0 2 4 1 0 1 0 0 - - 1 1 the company had a positive mark on that criterion, if there is a ng scale is from 0 to 7 and is made up of the sum of the grey columns. 1 Price-to-Book. 2 Return on Equity. 3 Earnings Before Interest, Taxes, Depreciation and Amortization. March 2017 | 9

Step 2 - QUANTITATIVE FIL TERING LOW VOLATILITY AND NEXT DIVIDEND HOW IT WORKS: THE QUANTITATIVE FILTERS On average, a stock with a low volatility tends to offer a superior Sharpe Ratio 1 than the market 2   We rank the stocks which comply with the Deep Value filter according to their Historical Volatility 3  Stocks that provide recurrent income enable, on average, to secure a higher gearing within the structured product  We select a maximum of 25 low volatility stocks 3 which are expected to pay a dividend in the coming month 1 The Sharpe ratio is a measure for calculating risk-adjusted return. 2 For further details, please turn to slide 24. 3 According to their 6-month historical volatility. Next  To reach a total of 50 stocks, we complete the Deep Value 6-month Final Index Vol. Rank Month Score Vol Constituent selection with the least volatile stocks from Div the Deep Value selection Rexam PLC 5 10.82% 1 No Yes  There are on average 14 stocks paying a Munich Re AG 6 16.97% 6 No Yes dividend in the Index composition 4 (less than BAE Systems PLC 4 17.56% 11 No Yes 1/3 rd ) on a total of 50 Compass Group PLC 5 18.77% 16 No Yes TeliaSonena AB 7 19.37% 22 No Yes  There are always more low volatility stocks in Unilever PLC 5 19.83% 26 No Yes the composition than stocks paying dividends Roche Holding AG 5 20.05% 31 No Yes thanks to the 50% constraint IMI PLC 6 20.54% 36 No Yes 4 C omposition values based on simulations from December 2000 to April 2015. Standard Life PLC 4 22.02% 54 Yes Yes Wolters Kluwer 5 24.73% 108 Yes Yes Sources: BNP Paribas and Bloomberg. For illustrative purpose only, subject to change. A Vol. R ank of 1 is given to the company with the lowest Historical Volatility, a Vol. R ank of 2 is given to the second least volatile company, and so on. The shares of companies which rank in the bottom one-third are excluded. March 2017 | 10