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Danske Invest Danish Mortgage Bond Fund

Danske Invest Danish Mortgage Bond Fund . Status and Outlook. 8 February 2011. Return against Competitors. Performance of the Danish Mortgage Bond Fund. Volatility 3,77 Sharpe Ratio 0,77 Ratio of positive returns 67,9%. Duration of segments in the Danish Bond Market.

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Danske Invest Danish Mortgage Bond Fund

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  1. Danske Invest Danish Mortgage Bond Fund Status and Outlook 8 February 2011

  2. Return against Competitors

  3. Performance of the Danish Mortgage Bond Fund Volatility 3,77 Sharpe Ratio 0,77 Ratio of positive returns 67,9%

  4. Duration of segments in the Danish Bond Market

  5. Duration in the Danish Mortgage Bond Fund(duration band of the fund: 3-9)

  6. Outlook and Positions going into 2011 Mortgages: overweight • Callable Danish Mortgages with long duration will perform the most on spread narrowing. Global demand for AAA bonds will keep the segment in a narrow spread to Govies and with a good up-side due to decreasing volatility. Capped Floaters also look interesting, but liquidity in this segment must be kept in mind. Short Term Rates: Neutral Duration: Underweight to neutral • We will slightly increase the overall amount of negative convexity in the portfolio. Note: We observe demand from EUR-investors and we do not fear supply from pension funds due to Solvency II

  7. Return on selected Danish Bonds (January 2011) 2011 started out with a flattening of the yield curve, which has supported mortgages relative to governments with equivalent duration. Most notably capped-floaters benefitted from this, but 20-year callables also had a great start of the year.

  8. Rating of Danish mortgages • Danish mortgage bonds have been rated since August 1996 • Strict asset/liability rules – known as the Balance Principle • All lending is collateralized through property (i.e. Covered bond)

  9. The Danish mortgage system is the best in the world (according to e.g. George Soros, Mexico and EU) • The embedded options are insurances sold to the borrower! • The borrower can prepay at par = insurance against falling rates • The borrower can redeem the loan at market price = insurance against rising rates (every loan is linked directly to a specifik bond)

  10. Yield spread (bp) 4% DGB 2019 3,25% DBR 2020 4% Nykredit 2041 140 150 Option premiums 70 70 Option Adjusted Spread 70 80 5% Nykredit 2041 190 200 Option premiums 100 100 Option Adjusted Spread 90 100 Current Spread on Danish Mortgages Expected return for German investor: 4,6% p.a. • 3,25% DBR 2020: 3,2% • Option Adjusted Spread: 0,9% • Alpha: 0,5% 21.01.2011

  11. Debt crisis part III Debt : 97% of GDP Deficit : 32% of GDP Scandinavia has a Low Debt Burden

  12. Or maybe it is just about lackof corruption in Scandinavia... • Transperancy International Corruption Perceptions Index – Annual Report 2009 • Draws on 13 different expert and business surveys, to measure perceived levels of public sector corruption in a given country

  13. Disclaimer & Contact information Danske Capital Strødamvej 46 DK 2100 Copenhagen Tel. +45 45 13 96 00 Fax +45 45 14 98 03 http://www.danskecapital.com

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