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Diversify globally and gain on both risk and return!

Diversify globally and gain on both risk and return!. The JGAM Team. Thomas Fischer SVP JGAM April 6, 2013. Thomas Fischer. MBA 37 years in financial services Currency trader 1978-2000 England, Germany and Denmark Jyske Bank since 2000 JGAM since 2008 Golf

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Diversify globally and gain on both risk and return!

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  1. Diversify globally and gain on both risk and return! The JGAM Team Thomas Fischer SVP JGAM April 6, 2013

  2. Thomas Fischer • MBA • 37 years in financial services • Currency trader 1978-2000 • England, Germany and Denmark • Jyske Bank since 2000 • JGAM since 2008 • Golf • Copenhagen Marathon 05 4:10 • Copenhagen Marathon 07 4:08

  3. JGAM – What’s in it for you? 1. Unique global investments for US investors 2. Get your own experienced asset manager 3. Your regulated and transparent offshore partner Henrik, Carsten and Bente working with a smile

  4. Unique global investments for US investors 2. Get your own experienced asset manager 3. Your regulated and transparent offshore partner Bjarne, Lars and Thomas - the management team

  5. What we do JGAM offers Global Investments to US persons

  6. Unique global investmentsfor US investors • SEC registered Investment Adviser since 2008 • Regulated by the Danish FSA • JGAM invest your money as a non-US person • A world of opportunities • Increased diversification and potentially higher returns Carsten, Henrik, Bente and Thomas – the relationship managers

  7. Invest globally and you gain on both risk and return Return Efficient front with and without global investments Higher return at a given level of risk Risk Lower risk at a given level of return

  8. Risk diversification by spreading your investments “Why Not Diversify Internationally Rather Than Domestically?” Solnik (1974) The greater the number of securities, the less the portfolio is likely to lose as the result of one company’s misfortune An internationally diversified portfolio is likely to carry a much smaller risk than a domestic portfolio 1 2

  9. The Size of the Foreign Exchange market • USD 4 trillion a day • Spot transactions 1.4 trillion a day • 98% of FX tradesinvolve at leastone of the G3 currencies • EUR/USD 28% of total turnover • USD/JPY 14% of total turnover • GBP/USD 9% of total turnover • AUD/USD 6% of total turnover • USD/CAD 5% of total turnover

  10. FX As An Asset Class –why currencies make sense in an uncertain climate • 24 hourtrading • Lowspreadsbetweenbuying/selling • Liquid – dailyvolume $ 4 Trillion (NYSE dailyturnover $ 55 Billion) • Many participants – difficult to manipulatemarkets • AnonymousTrading • Absolutereturns • Not correlatingwithother asset classes • Evenduring the 2008 ”Meltdown” tradingremainliquid

  11. Returns in a Zero-Sum Market • As the most liquid market in the world, shouldn’t currency markets be the most efficient, and so not offer consistent returns to investors? • AND • How can a zero-sum game (or a long-short market) such as currencies offer consistent returns to investors? Who are the systematic losers?

  12. Liquidity-Seekers (orNon-ProfitSeekers) • International investors who buy bonds, equities, or credit, who either fully hedge their currency exposure, or do not hedge at all • Central banks who buy or sell currencies in order to maintain an exchange rate policy • Corporates who need to export, import or engage in FDI • Tourists

  13. Profit-Seekers • Currency Managers • Dedicatedcurrency-onlyhedge funds • Global macro hedge funds, who trade currencies as well as other markets • Retail Traders (Trading platforms) • JGAM

  14. TradingStrategies • Simple transaction (FX account) • Leverage (options-loans-platforms) • Fundamental (long term) • Technical analysis (short term) • Hedging

  15. Technical analysis When under stress, your instincts take over and you are governed by factors such as fear, hope, greed, confidence and orthodox beliefs Thus, markets often collapse in much the same manner because investors react to the same stress factors. This explains why patterns are used in a technical analysis.

  16. Importanttools • 50/100/200 daysmovingaverage • Fibonacci – Extension/Retracement • High and Low points

  17. The EUROSource: BCA

  18. Cyprus – A game changer? • Cyprus GDP 0.20% of total Eurozone (USD 25 billion) • Cyprus banks 8X GDP (Iceland 2008 10X) • Officially 30-40% (probablymuch more) of depositscome from non-residents (Russians) • TinyCyprus is the biggestforeign investor in the Russianeconomy! • End of Cyprus business model!

  19. Eurozone alphabetsoup!

  20. ECB alphabetsoup - explained! • EFSF = European Financial StabilityFacilitycreated 2010 EUR 440 Billion • EFSM = European Financial StabilisationMechanismcreated 2010 – EUR 60 billion • SMP = Securities Markets Programme – ECB purchase in secondarybondmarkets – discontinued 2012 now OMT • ESM = European StabilityMechanismcreated 2012 EUR 500 Billion • LTRO = Long-TermRefinancing Operations existedsince 1999 but Mario Draghiintroduced 3 yearlending in 2011 EUR 489 Billion in 2012 EUR 529 Billion • OMT = OutrightMonetaryTransacions 2012 – ECB purchasesecondarysovereignbondmarkets

  21. America INC (USD) • 1981-1984 USD trade weighted 80-120 (+50%) • 1994-2000 USD trade weighted 77-110 (+43%) • Another major revaluation in USD – NO! • In 1981 and 1994 US had a current account surplus, high interest rates and an under valued currency (based on PPP) • Today current account deficit, low interest rates and a fairly valued currency

  22. Path to a weaker USD • Fed’s open-ended QE will crowd out foreign buyers • Falling real interest rates • Increasing current account deficits • Less important as a reserve currency • Cheap Eurozone equities and higher yields attract capital inflows (when risk of common currency falling apart dissipates)

  23. How did JGAM invest in previous years • In 2009 we hit corporate bonds spot on • We entered the year 40% in cash and within few months we were significantly into undervalued corporate bonds • In 2010 we swapped into stocks • Economies were improving after the 2008 crisis, stock markets rallied and we took the profit on corporate bonds and swapped into stocks • In 2011 we rushed for shelter • The euro crisis took off, stock markets crashed and we looked for shelter outside the eurozone and the euro, favoring gold and solid dividend paying global stocks • In 2012 we have been riding the “equity wave” • Stock markets have rallied on the back of aggressive monetary policies in most major economies except the eurozone • We have been heavily exposed to stock markets except in Europe • However, in July we reduced risk exposure, awaiting an opportunity to enter the undervalued European market

  24. Focus on medium term outlook • Economic momentum; improving • Liquidity; still favorable • Valuation; favor stocks • Equities – overweight with Emerging Market exposure • Corporate bonds for diversification

  25. Asset allocation and diversification • Top-down investment decision process • Time horizon • Short term; 0-3 months, market sentiments, 10% • Medium term; 3-12 months, (three indicators), 60% • Valuation; what asset classes/sectors/regions are over-/under-valued? • Liquidity; free liquidity available for investments in financial assets • Economic momentum; the business cycle, growth and output gap • Long term; 1-5 years, structural fundamentals, 30% Ole, Lars and Peter – the portfolio managers

  26. Outlook 2013 • Medium term • Valuation; stock yield is much more attractive than bond yield E/P S&P 500 Index (“stock market yield”) vs. 10yr Treasury Yield

  27. Outlook 2013 • Medium term • Liquidity • aggressive central banks -> excess money + deleveraging and excess capacity -> flow into financial assets -> • risk-on = equities and EM • risk-off = bonds and gold Source: Gold Switzerland

  28. Low Risk Portfolio

  29. Medium Risk Portfolios

  30. High Risk Portfolios

  31. Finally, a good advice Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas. Paul Samuelson - Economist

  32. ProductsAn overview • Managed Accounts (Discretionary Portfolio Management) • Advisory Account (non-Discretionary) • IRA pension plans • Leveraged investments • Minimum funds • Client segmentation

  33. ProductsMore details • Managed Accounts (Discretionary Portfolio Management) • No restrictions on securities • Minimum 200t USD • Advisory Account (non-discretionary) • Restrictions on non U.S. securities and choice of broker • Minimum 1m USD • IRA pension plans • Downscale of risk and no leverage • Leveraged investments • Minimum medium risk profile

  34. JGAM setup options • Personal accounts • Company accounts • Trusts • Foundations • IRA Bente, Carsten, Thomas and Henrik – the relationship managers

  35. Fee based only Analysis based on PriceMetrix North America database representing 15,000 advisors, 2.3 mill. investors and over USD 850 bn in investment assets. PriceMetrix, Spring 2011. No performance fees and no bonuses. JGAM believe they create wrong incentives. * Swiss banks typically have a minimum fee of +3,000 USD, required minimum investable assets of +2 mill. USD and higher fees.

  36. Hard facts per 31 December 2012 • 2.1bn DKK (365m USD) under management • 437 clients • 31m DKK (5.3m USD) equity capital • 72% solvency ratio • 10 employees Peter concentrated dealing or reading an analysis

  37. Investment Committee members • Lars Stouge • Chairman • MSc and MBA • Banking since 1990 • Established JGAM 2008 • Ole Stig Helland • Senior Portfolio Manager • BA • Banking since 1992 • Joined JGAM 2008 • Thomas Fischer • Deputy chairman • MBA • Banking since 1975 • Joined JGAM 2008 • Peter Conradsen • Senior Portfolio Manager • BA • Banking since 1991 • Joined JGAM 2008

  38. Unique global investments for US investors 2. Get your own experienced asset manager 3. Your regulated and transparent offshore partner

  39. History • Subsidiary of Jyske Bank • Danish FSA approval 8 February 2008 • SEC Investment Adviser24 March 2008 • Operations started 1 April 2008 • Danish FSA inspectionJune 2009 Providing advise on securities using U.S. “interstate commerce” requires to register with the SEC cf. The Securities Act of 1933 and The Investment Adviser Act of 1940.

  40. Research and trading partners

  41. JGAM publications • All JGAM’s investment decisions and analysis are documented in various publications, published on JGAM’s homepage www.jgam.com • Market Update - Weekly memo summing up major financial events • Portfolio Update - Summarizing changes in the Asset Allocation portfolios • Asset Allocation Strategy – Details of the Asset Allocation portfolios • Investment Recommendations - Investment cases for Advisory clients • Editors’ corner - Memos on economic and financial topics

  42. Strong Danish banks in EU stress test • New capital requirement of 9% (before 7%) • Major Danish banks show strong resilience in EU stress tests (European Banking Authority’s test) • Jyske Bank’s core capital is 13.8% and was never below 12.3% in the stress test

  43. Denmark • Trade balance surplus • Low unemployment • Highly regulated banking industry • Active democracy (voting participation +85%) • Least corrupt nation, 2008 and 2010 • Member of EU but not part of the euro

  44. 5 easy steps to become a client • Complete custodian bank application forms 2. Choose JGAM investment product 3. Sign JGAM contracts 4. Wire transfer funds 5. Go!

  45. Relationship Management Team • Thomas Fischer – Senior Vice President • Financial Services since 1975 • Joined JGAM 2008 • Bente Larnkjær – Vice President • Financial Services since 1976 • Joined JGAM 2008 • Carsten Brandt – Vice President • Financial Services since 1986 • Joined JGAM 2008 • Henrik Tjott Villumsen – Vice President • Financial Services since 1999 • Joined JGAM 2008

  46. Documents Initial package • Investment profile questionnaire • General Business Conditions • Form ADV Part 2A (Brochure) • Custodian Bank forms Packagewhenaccount is established • Managed and/or Advisory Agreement • General Client Agreement • Other documents See legal documents on jgam.com/terms

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