Practical Volatility Management through an Array of Indices · 2014. 5. 23. · S&P Dow Jones Indices 8th May, 2014 / Hong Kong . For Financial Professionals. Not for Public Distribution

For Financial Professionals. Not for Public Distribution. PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of S&P Dow Jones Indices.

Practical Volatility Management through an Array of Indices

Priscilla Luk

Director, Index Research & Design

S&P Dow Jones Indices

8th May, 2014 / Hong Kong

For Financial Professionals. Not for Public Distribution. PROPRIETARY. Permission to reprint or distribute any content from this presentation requires the written approval of S&P Dow Jones Indices. 2

REDUCING VOLATILITY EXPOSURE

CONTROLLING VOLATILITY EXPOSURE

HEDGING VOLATILITY EXPOSURE

01

02

03 SUMMARY 04

PRACTICAL VOLATILITY MANAGEMENT THROUGH AN ARRAY OF INDICES



3

Capital preservation is difficult in a volatile market. After a large loss, gains needed to break even may take years to achieve.

Year 1

$10

Year 3

$5

Year X

$10

Year 2

$20

return = 100%

return = -75%

need to gain 100% to break

even



4

Managing Volatility Exposure Through


S&P Low Volatility Indices

Reducing risk exposure through stock selection and

alternative weighting

Underlying assets:

100% in equities

S&P Risk Control Indices

Controlling risk exposure at target levels through varying

exposures to equities and cash

Underlying assets:

Equities & Cash

S&P 500 Dynamic VEQTOR Index

Hedging potential downside risk by dynamic allocation

among equities, volatility and cash

Underlying assets:

Equities, VIX futures & Cash





01

02

03 SUMMARY 04



REDUCING VOLATILITY EXPOSURE THROUGH S&P LOW VOLATILITY INDICES

6

• S&P Low Volatility Indices provide exposure to equity markets with reduced volatility exposures.

• It adopts the simple and transparent rankings-based approach in portfolio construction, seeking to reduce risk exposure through stock selection and alternative weighting:

1. Stocks are ranked by their historical volatilities.

2. A selected number of stocks with least volatilities form the low volatility portfolio

3. Constituents are then weighted by inverse of the volatility figure (i.e. the least volatile stocks receives the highest weightings)

Region S&P Low Volatility Index Constituents

Developed Market

(ex US)

S&P BMI International Developed Low

Volatility Index

200 least volatile stocks in the S&P Developed Ex. US &

South Korea LargeMidCap Index

Emerging MarketS&P BMI Emerging Markets Low

Volatility Index

200 least volatile stocks in the S&P Emerging Plus

LargeMidCap Index

US S&P 500 Low Volatility Index 100 least volatile stocks in the S&P 500

Europe S&P Europe 350 Low Volatility Index 100 least volatile stocks in the S&P Europe 350 Index

Pan Asia S&P Pan Asia Low Volatility Index50 least volatile stocks in the S&P Pan Asia Ex-New

Zealand LargeMidCap Index

Nordic S&P Nordic 350 Low Volatility Index30 least volatile stocks in the S&P Nordic Broad Market

Index (BMI)



Lowest Volatility

Highest Volatility

Stocks are

ordered by

their 252-

day realized

volatility

(standard

deviation of

price

changes)

Constituents are

weighted by inverse

of volatility figures

Top 100 stocks with lowest

volatility are included to the index

Rest of 400

stocks with

higher

volatility are

excluded

100 least

volatile

stocks

S&P 500

Low

Volatility

Index

S&P 500

Index

Constituent s and weightings are reviewed quarterly

Index Construction: S&P 500 Low Volatility Index



8

Source: S&P Dow Jones Indices. Data from March 31, 2004 to March 31, 2014.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

3/04 3/05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13

Utilities

Telecom

Materials

Industrials

I.T.

Health Care

Financials

Energy

Cons Staple

Cons Disc

S&P 500 Low Volatility Index Composition (Mar 2004 – Mar 2014)

Most concentrated in defensive and low volatility sectors: Utilities and Consumer Staples



9

• S&P Low Volatility indices were generally 25% to 35% less volatile than the underlying benchmarks

• Their return drawdowns tended to be much reduced historically

Source: S&P Dow Jones Indices. Data from March 31, 2004 to March 31, 2014. The low volatility portfolios are presented by the S&P 500 Low Volatility, S&P Europe 350 Low

Volatility, S&P Pan Asia Low Volatility, S&P BMI International Developed Low Volatility and S&P Emerging Markets Low Volatility Indices. The regional benchmarks are presented by

the S&P 500, S&P Europe BMI, S&P Pan Asia BMI, S&P Developed ex US BMI and S&P Emerging Plus BMI. The S&P Low Volatility index data reflected in this chart may reflect

hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more information on some of the inherent limitations associated with

back-tested Index data and performance information.

10.4%

13.3%

16.4%

12.8%

15.7%14.7%

18.6%

23.6%

18.1%

20.2%

0%

5%

10%

15%

20%

25%

US DM ex US EM Pan Asia Europe

S&P Low Volatility Indices Benchmark Indices

Annualized Volatility in Past 10 Years (Mar 2004 - Mar 2014)

-29.0%

-38.0%-42.4%

-33.3%

-43.5%-46.4%

-53.4%-57.9%

-49.3%

-55.5%

-70%

-60%

-50%

-40%

-30%

-20%

-10%

0%



12-Month Max Drawdown in Past 10 Years (Mar 2004 - Mar 2014)



10

• S&P Low Volatility indices generally had better absolute and risk-adjusted returns than their regional benchmarks in the past 10 years

Source: S&P Dow Jones Indices. Data from March 31, 2004 to March 31, 2014. The low volatility portfolios are presented by the S&P 500 Low Volatility, S&P Europe 350 Low

Volatility, S&P Pan Asia Low Volatility, S&P BMI International Developed Low Volatility and S&P Emerging Markets Low Volatility Indices. The regional benchmarks are presented by

the S&P 500, S&P Europe BMI, S&P Pan Asia BMI, S&P Developed ex US BMI and S&P Emerging Plus BMI. The S&P Low Volatility index data reflected in this chart may reflect

hypothetical historical performance. Please see the Performance Disclosure at the end of this document for more information on some of the inherent limitations associated with

back-tested Index data and performance information.

9.0%

10.7%

15.0%

11.1% 11.6%

7.4% 7.7%

10.9%

6.4%

8.7%

0%

2%

4%

6%

8%

10%

12%

14%

16%



Annualized Return in Past 10 Years (Mar 2004 - Mar 2014)

0.870.80

0.910.87

0.74

0.50

0.410.46

0.350.43

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%



Risk-Adjusted Return in Past 10 Years (Mar 2004 - Mar 2014)





01

02

03 SUMMARY 04



CONTROLLING VOLATILITY EXPOSURE THROUGH S&P RISK-CONTROL INDICES

12

• S&P Risk Control Indices provide a way for investors to dynamically change the exposure to a particular market segment in order to control risk exposure at a desired target level.

• Through the S&P Risk-Control framework, investors have the option to choose

• an underlying index to gain exposure to the desired market segment

• a desired target volatility level to match their appetite for risk

• Example: S&P 500 Daily Risk-Control Indices

• The S&P 500 Risk Control Index seeks to maintain a target volatility by dynamically allocating weight between the S&P 500 and cash (overnight USD LIBOR) based on risk level (i.e. realized volatility of the S&P 500).

• The risk-control index increases its allocation to cash when the risk level is too high, and uses leverage (limited to 150%) when the risk level is too low.

• The target risk levels available for this index series are 5%, 7.5%, 10%, 12% and 15%. Exposure to the underlying index and cash is adjusted on a daily basis.



13

The index dynamically adjusts equity exposure based on its realized volatility to control target risk exposure

• When volatility increases, the risk control index moves out of the underlying index and into cash.

• When volatility decreases, the risk control index moves more into the underlying index and out of cash.

• When the volatility of the underlying index falls below the target levels, the exposure to the index could be leveraged

Source: S&P Dow Jones Indices. Charts are provided for illustrative purposes.



14

S&P 500 RC 5% RC 7.5% RC 10% RC 12% RC 15%

Max 30.4% 5.3% 7.6% 10.5% 12.7% 15.9%

Min 5.9% 2.5% 3.8% 5.1% 6.1% 7.7%

Median 14.2% 3.8% 5.7% 7.6% 9.0% 11.2%

Target 5.0% 7.5% 10.0% 12.0% 15.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%Rolling 12-Month Annualized Volatilityin Past 10 Years (Mar 2004 - Mar 2014)

Source: S&P Dow Jones Indices. Data from March 31, 2004 to March 31, 2014. Data reflected in this chart may reflect hypothetical historical performance. Please see the

Performance Disclosure at the end of this document for more information on some of the inherent limitations associated with back-tested Index data and performance information.


70

90

110

130

150

170

190

210

230

250

3/04 3/05 3/06 3/07 3/08 3/09 3/10 3/11 3/12 3/13 3/14

S&P 500 RC 5% RC 7.5% RC 10% RC 12% RC 15%

Total Return Performance in Past 10 Years(Mar 2004 - Mar 2014)


15

Index S&P 500 RC 5% RC 7.5% RC 10% RC 12% RC 15%

Annualized Return 7.4% 4.3% 5.8% 6.5% 7.4% 8.7%

Annualized Volatility 16.2% 4.0% 5.8% 8.0% 9.6% 12.0%

Risk-Adjusted Return 0.46 1.07 0.99 0.82 0.77 0.73

12-Month Max Drawdown -46.4% -6.6% -9.5% -14.1% -17.3% -22.0%

Source: S&P Dow Jones Indices. Data from March 31, 2004 to March 31, 2014. Data reflected in this chart may reflect hypothetical historical performance. Please see the

Performance Disclosure at the end of this document for more information on some of the inherent limitations associated with back-tested Index data and performance information.





01

02

03 SUMMARY 04



HEDGING VOLATILITY EXPOSURE THROUGH S&P 500 DYNAMIC VEQTOR INDEX (VEQTOR)

17

Allocates the majority of weightings to the S&P 500® Total Return Index when volatility is low

Allocates part of the weightings to the S&P 500® VIX Short-Term Futures Total Return Index to provide a “volatility hedge” when volatility is high

Shifts 100% weighting to an interest-bearing cash investment when the index loses more than 2% in a week (stop loss)

Equity

S&P 500

Volatility

VIX Futures

Cash

O/N LIBOR

• Implied equity volatility has historically had a strongly negative correlation to equity market returns and is considered a useful tool to hedge against the potential downside of the broad equity market.

• The S&P 500 Dynamic VEQTOR Index dynamically allocates between equity, volatility and cash in order to hedge equity portfolio tail risk.



18

Volatility Equity Allocator

VEQTOR

Implied Volatility

Trend

Realized Volatility

Equity

S&P 500 Weight: 60-97.5%

Cash

O/N LIBOR Volatility

VIX Futures Weight: 2.5-40%

No Yes STOP LOSS




19

• The index allocates weightings between equity and volatility based on signals generated from Realized Volatility and Implied Volatility

• Realized volatility is classified into 5 bands based on 1-month realized volatility of S&P 500 index

• Implied volatility trend is established if the following conditions on VIX remain for 10 consecutive days or more:

• 5-day MA above 20-day MA Implied Volatility Uptrend

• 5-day MA below 20-day MA Implied Volatility Downtrend

• Otherwise No Implied Volatility Trend

• Signals and trends are reviewed daily, allocation may change on a less frequent basis.

S&P 500 VIX Futures S&P 500 VIX Futures S&P 500 VIX Futures

Less than 10% 97.50% 2.50% 97.50% 2.50% 90.00% 10.00%

10% ≤ RV < 20% 97.50% 2.50% 90.00% 10.00% 85.00% 15.00%

20% ≤ RV < 35% 90.00% 10.00% 85.00% 15.00% 75.00% 25.00%

35% ≤ RV ≤ 45% 85.00% 15.00% 75.00% 25.00% 60.00% 40.00%

More than 45% 75.00% 25.00% 60.00% 40.00% 60.00% 40.00%

Realized Volatility

(RV)

Implied Volatilty Downtrend No Implied Volatilty Trend Implied Volatilty Uptrend

Target Equity / Volatility Index Allocation




20

Allocation History

VEQTOR allocation to equity:

Median = 90%

Mean = 83%

Under stressed market environment, allocation to equity may decline to as low as 60%.

• Sep – Dec 2008

• August 2011

Source: S&P Dow Jones Indices. Data from Dec 31, 2005 to March 31, 2014. Data reflected in this chart may reflect hypothetical historical performance. Please see the Performance

Disclosure at the end of this document for more information on some of the inherent limitations associated with back-tested Index data and performance information.



21

• If the index loses more than 2% in 5 days, the index allocates 100% weighting to cash position. Weightings of both equity and volatility components are zero

• Once the 5-day index performance is greater than -2.0%, the index will allocate weightings back to equity and volatility components in accordance with the previous steps described.

• Average duration in cash position = 2.39 days

STOP LOSS

Stop Loss Mechanism




60

110

160

210

260

310

12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/13

S&P 500 S&P 500 VEQTOR

Total Return Performance(Dec 2005 - Mar 2014)

10/9/2007

3/9/2009

9/15/2008

10/16/2008 10/9/2007

4/2/2012


22

Compared to S&P 500, VEQTOR had smaller return drawdown and faster recovery historically.

S&P 500

Total Return

S&P 500 Dynamic

VEQTOR Index Total

Return

Maximum Draw Down -55.25% -17.90%

Index Value 1095.04 112477.80

Date 9-Mar-09 15-Sep-08

Previos Peak Value 2447.03 137005.24

Date 9-Oct-07 9-Oct-07

Recovery Value 2449.08 140308.26

Date 2-Apr-12 16-Oct-08

#Days to Recover 1120 31



Index S&P 500

Annualized Return 6.0%

Annualized Volatility 15.8%

Risk-Adjusted Return 0.38

12-Month Max Drawdown -46.4%

S&P 500 VEQTOR

11.1%

13.3%

0.83

-11.2%



23

Month S&P 500 S&P 500 VEQTOR

Oct-11 10.9% 3.9%

Apr-09 9.6% 4.4%

Sep-10 8.9% 5.0%

Mar-09 8.8% 11.6%

Jul-09 7.6% 5.8%

Jul-10 7.0% 0.3%

Dec-10 6.7% 3.0%

Mar-10 6.0% 4.9%

Nov-09 6.0% 3.2%

May-09 5.6% 4.3%

Jan-13 5.2% 2.0%

Jul-13 5.1% 2.3%

Apr-08 4.9% 0.2%

Oct-13 4.6% 1.4%

Feb-14 4.6% 3.7%

Jan-12 4.5% 2.9%

Apr-07 4.4% 3.7%

Feb-12 4.3% 4.1%

Jun-12 4.1% 1.7%

Oct-10 3.8% 0.8%

Average 6.1% 3.5%

Max 10.9% 11.6%

Min 3.8% 0.2%

20 Biggest S&P 500 Monthly Gain

(Dec 2005 - Mar 2014)

Month S&P 500 S&P 500 VEQTOR

Oct-08 -16.8% 26.4%

Feb-09 -10.6% -5.5%

Sep-08 -8.9% 4.5%

Jun-08 -8.4% -5.1%

Jan-09 -8.4% -1.6%

May-10 -8.0% -2.2%

Nov-08 -7.2% 4.2%

Sep-11 -7.0% 2.6%

May-12 -6.0% -2.2%

Jan-08 -6.0% -4.2%

Aug-11 -5.4% 10.5%

Jun-10 -5.2% -4.5%

Aug-10 -4.5% -3.9%

Nov-07 -4.2% -0.1%

Jan-10 -3.6% -4.1%

Jan-14 -3.5% -3.2%

Feb-08 -3.2% -2.8%

Jul-07 -3.1% -0.5%

Aug-13 -2.9% -2.6%

May-06 -2.9% 1.0%

Average -6.3% 0.3%

Max -2.9% 26.4%

Min -16.8% -5.5%

20 Biggest S&P 500 Monthly Loss

(Dec 2005 - Mar 2014)







01

02

03 SUMMARY 04




25

Dec 2005 - Mar 2014 S&P 500

S&P 500 Low

Volatility

S&P 500

VEQTOR

S&P 500

Daily RC 5%

S&P 500

Daily RC

7.5%

S&P 500

Daily RC 10%

S&P 500

Daily RC 12%

S&P 500

Daily RC 15%

Annualized Return 7.2% 9.1% 13.4% 4.3% 6.0% 6.7% 7.7% 9.0%

Annualized Volatility 15.8% 11.2% 13.3% 4.0% 5.8% 8.0% 9.6% 11.9%

Risk-Adjusted Return 0.46 0.81 1.01 1.08 1.02 0.84 0.80 0.76

12-Month Max Drawdown -46.4% -29.0% -11.2% -6.6% -9.5% -14.1% -17.3% -22.0%

60

110

160

210

260

310

12/05 12/06 12/07 12/08 12/09 12/10 12/11 12/12 12/13

S&P 500

S&P 500 Low Volatility

S&P 500 VEQTOR

S&P 500 Daily RC 5%

S&P 500 Daily RC 7.5%

S&P 500 Daily RC 10%



Total Return Performance(Dec 2005 - Mar 2014)





26

S&P 500S&P 500

Low Vol

S&P 500

VEQTORRC 5% RC 7.5% RC 10% RC 12% RC 15%

Max 30.4% 20.6% 30.5% 5.3% 7.6% 10.5% 12.7% 15.9%

Min 5.4% 3.3% 3.7% 2.5% 3.8% 5.1% 6.1% 7.7%

Median 13.8% 9.5% 10.6% 3.8% 5.7% 7.5% 9.0% 11.1%

Target 5.0% 7.5% 10.0% 12.0% 15.0%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Rolling 12-Month Annualized Volatilityin Past 10 Years (Dec 2005 - Mar 2014)





27

Year S&P 500

S&P 500 Low

Volatility

S&P 500

VEQTOR

S&P 500

Daily RC 5%

S&P 500

Daily RC

7.5%

S&P 500

Daily RC 10%

S&P 500

Daily RC 12%

S&P 500

Daily RC 15%

2006: Return 15.8% 19.7% 14.1% 10.7% 13.4% 16.1% 18.3% 20.3%


2007: Return 5.5% 0.6% 17.2% 5.1% 5.2% 4.5% 4.7% 5.0%


2008: Return -37.0% -21.4% 21.3% -5.0% -7.9% -12.1% -14.9% -19.0%


2009: Return 26.5% 19.2% 26.0% 5.8% 8.9% 11.4% 13.7% 17.2%


2010: Return 15.1% 13.4% -0.5% 5.0% 7.6% 9.8% 11.7% 14.5%


2011: Return 2.1% 14.8% 17.4% -0.7% 0.2% -1.9% -2.5% -3.4%


2012: Return 16.0% 10.3% 3.5% 3.7% 5.6% 7.2% 8.5% 10.5%


2013: Return 32.4% 23.6% 14.3% 12.1% 18.7% 25.1% 30.7% 39.3%


2014 Jan-Mar: Return 1.8% 3.3% 1.2% 0.1% 0.1% 0.1% 0.1% 0.2%


2005 Dec - 2014 Mar:

Annualized Return 7.2% 9.1% 13.4% 4.3% 6.0% 6.7% 7.7% 9.0%






28

-16.8%

-12.8%

-5.5%

-3.1%

-3.4%

-6.3%

-7.5%

-9.4%

-18.0%

-16.0%

-14.0%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

10 9 8 7 6 5 4 3 2 1

S&P 500


S&P 500 VEQTOR

S&P 500 Daily RC 5%





10 Biggest Monthly Loss (Dec 2005 - Mar 2014)

10.9%

5.9%

26.4%

2.2%

3.4%4.5%5.4%

6.7%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

1 2 3 4 5 6 7 8 9 10

S&P 500


S&P 500 VEQTOR

S&P 500 Daily RC 5%





10 Biggest Monthly Gain (Dec 2005 - Mar 2014)





29

Index S&P Low Volatility S&P Risk Control S&P 500 VEQTOR

Volatility Management

Approach

Reducing risk exposure through

stock selection and alternative

weighting

Controlling risk exposure at target

levels through varying exposures

to equities and cash

Hedging potential downside risk by

dynamic allocation among equities,

volatility and cash

Underlying Assets 100% in equitiesUnderlying assets:

Equities & Cash

Underlying assets:

Equities, VIX futures & Cash

Fixed-Volatility Target No Yes No

Stop-Loss Feature No No Yes

Rebalancing Frequency Quarterly Daily/Monthly Daily

Historical VolatilityMostly less volatile than the

benchmark

Mostly fluctuated tightly around

and below target volatility level

Mostly less volatile than the benchmark

and swang in a wide band

Strong equity bull market

Participated in the uptrend

market with a lag as the index has

low beta by design

Participated in the uptrend

market; led or lagged depending

on volatility target

Participated in the uptrend market with

underformance as suffered from cost of

hedging

Strong equity bear marketMostly outperformed; declined

with reduced drawdown

Mostly outperforms; declined with

reduced drawdown depending on

volatility target

Mostly outperformed; profit from

hedging neutralized losss from equities

Flat or choppy market Slightly outperformed or even Slightly outperformed or evenMostly underperformed due to hedging

cost


PERFORMANCE DISCLOSURE

30

The S&P 500 Low Volatility Index was launched on April 20, 2011. The S&P BMI International Developed Low Volatility Index and the S&P BMI Emerging Markets Low Volatility Index were launched on December 15, 2011

The S&P Europe 350 Low Volatility Index was launched on August 21, 2012. The S&P Pan Asia Low Volatility Index was launched on November 26, 2012.. All information presented prior to the Launch Date is back-tested.

Back-tested performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect on the Launch Date. Complete index methodology details are

available at www.spdji.com.

The S&P 500 Daily Risk Control 10% Index was launched on May 13, 2009. The S&P 500 Daily Risk Control 5% Index and S&P 500 Daily Risk Control 15% Index were launched on September 10, 2009. The S&P 500 Daily

Risk Control 12% Index was launched on April 21, 2010. The S&P 500 Daily Risk Control 7.5% Index was launched on May 3, 2013. All information presented prior to the Launch Date is back-tested. Back-tested

performance is not actual performance, but is hypothetical. The back-test calculations are based on the same methodology that was in effect on the Launch Date. Complete index methodology details are available at

www.spdji.com.

The S&P 500 Dynamic VEQTOR Index was launched on November 18, 2009, at market close. All information presented prior to the Launch Date is back-tested. Back-tested performance is not actual performance, but is

hypothetical. The back-test calculations are based on the same methodology that was in effect on the Launch Date. Complete index methodology details are available at www.spdji.com.

S&P Dow Jones Indices defines various dates to assist our clients in providing transparency on their products. The First Value Date is the first day for which there is a calculated value (either live or back-tested) for a given

index. The Base Date is the date at which the Index is set at a fixed value for calculation purposes. The Launch Date designates the date upon which the values of an index are first considered live; index values provided for

any date or time period prior to the index’s Launch Date are considered back-tested. S&P Dow Jones Indices defines the Launch Date as the date by which the values of an index are known to have been released to the

public, for example via the company’s public Web site or its data-feed to external parties. For Dow Jones-branded indices introduced prior to July 31, 2013, the Launch Date (which prior to July 31, 2013, was termed “Date of

Introduction”) is set at a date upon which no further changes were permitted to be made to the index methodology, but that may have been prior to the Index’s public release date.

Past performance is not an indication of future results. Prospective application of the methodology used to construct the indices may not result in performance commensurate with the back-test returns shown. The back-test period does not necessarily correspond to the entire available history of the index. Please refer to the methodology paper for the index, available at www.spdji.com for more details about the index, including the manner in which it is rebalanced, the timing of such rebalancing, criteria for additions and deletions, as well as all index calculations. It is not possible to invest directly in an Index.

Also, another limitation of hypothetical information is that generally the index is prepared with the benefit of hindsight. Back-tested data reflect the application of the index methodology and selection of index constituents in hindsight. No hypothetical record can completely account for the impact of financial risk in actual trading. For example, there are numerous factors related to the equities (or fixed income, or commodities) markets in general which cannot be, and have not been accounted for in the preparation of the index information set forth, all of which can affect actual performance.

The index returns shown do not represent the results of actual trading of investor assets. S&P Dow Jones Indices maintains the indices and calculates the index levels and performance shown or discussed, but does not manage actual assets. Index returns do not reflect payment of any sales charges or fees an investor would pay to purchase the securities they represent. The imposition of these fees and charges would cause actual and back-tested performance to be lower than the performance shown. In a simple example, if an index returned 10% on a US $100,000 investment for a 12-month period (or US$ 10,000) and an actual asset-based fee of 1.5% were imposed at the end of the period on the investment plus accrued interest (or US$ 1,650), the net return would be 8.35% (or US$ 8,350) for the year. Over 3 years, an annual 1.5% fee taken at year end with an assumed 10% return per year would result in a cumulative gross return of 33.10%, a total fee of US$ 5,375, and a cumulative net return of 27.2% (or US$ 27,200).


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Priscilla Luk

Global Research & Design


THANK YOU

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Practical Volatility Management through an Array of Indices · 2014. 5. 23. · S&P Dow Jones Indices 8th May, 2014 / Hong Kong . For Financial Professionals. Not for Public Distribution