INVESTMENT SOLUTIONS & PRODUCTS Hedge Fund Strategy Investment Strategy November 2016 IS&P Alternative Investment Strategy Tobias Merath, Anand Datar This document represents the views of the Investment Strategy Department of CS and has not been prepared in accordance with the legal requirements designed to promote the independence of investment research. It is not a product of the Credit Suisse Research Department even if it contains published research recommendations.
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Hedge Fund Strategy - Credit Suisse · indicators of current or future performance November 2016 Key Observations Source: Hedge Fund Research, Bloomberg, Credit Suisse The relationship
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INVESTMENT SOLUTIONS & PRODUCTS
Hedge Fund Strategy
Investment Strategy
November 2016
IS&P Alternative Investment Strategy
Tobias Merath, Anand Datar
This document represents the views of the Investment Strategy Department of CS and has not been prepared in accordance with the legal requirements designed to promote the independence of investment research. It is not a product of the Credit Suisse Research Department even if it contains published research recommendations.
Section Page
1. Hedge Funds Key Observations 3
2. Investment Strategy Overview and Strategy Outlook 4
3. Hedge Funds (Broad) 9
4. Special Topic: Hedge fund drawdowns and correlations 20
5. Fundamental: Overview (23) & Long Short Equity (25) 23
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
Key Observations
Source: Hedge Fund Research, Bloomberg, Credit Suisse
The relationship between hedge fund flows
and performance
The hedge fund industry saw outflows of nearly USD 28 billion during the last quarter. Interestingly though, the quarter also saw the best performance gains for hedge funds (USD 102 bn) since Q4 2013.
Over the 1-year time horizon and longer, a positive relationship exists between
hedge fund performance and investor flows. Given the performance of the last months, the recent outflows look quite a bit
overdone when comparing them with the historical pattern between flows and performance.
Since performance has continued to improve recently and since our hedge fund barometer is in supportive territory we would expect a reversal of recent investor outflows the coming quarters.
Fund flows into smaller funds
There is some evidence of larger funds underperforming smaller funds this
year, highlighted by the outperformance of fund-weighted hedge fund indices (HFRI Fund-weighted index up 4.1% YT-September) compared to asset-weighted hedge fund indices (HFRI Asset-weighted index +0.6% YT-
September). The performance divergence is also reflected in fund flows. Hedge funds
managing more than USD 1 bn (which account for more than 83% of
industry AUMs) saw USD 52.1 bn in outflows YTD 2016 (vs. industry-wide outflows of USD 51.4 bn), highlighting investors continue to increase
allocations to smaller funds.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
Hedge Fund Strategy Outlook at a glance (arrows show relative strategy preferences)
Strategy Fundamental View Nov 16
View
FU
ND
AM
EN
TA
L
Long Short
Equity
Close to average market volatility, as well as low inter-stock correlations are supportive for short-term performance of the style. While corporate
earnings are more or less flat YoY in Q3 2016, consensus earning growth expectations are probably too high leaving the market vulnerable, particularly as valuation is close to expensive. As a result we expect limited support from broader equity market beta, given political and macro risks and have a neutral outlook for Long/Short equity strategies. Within Long/Short equity we prefer funds with opportunistic or lower net exposure.
Emerging
Markets
Recent economic data in EMs has been better, while capital inflows have been strong. Equity valuations of EMs lower than for developed markets
and EMs should be relatively immune from a Brexit related slowdown in UK/ Europe. The recent stabilization of the US dollar index and of commodity prices is helpful. We have a neutral view on the strategy noting attractive opportunities in countries with reform momentum.
Risk
(Merger)
Arbitrage
Deal activity continues to grow at moderate levels, which provides a reasonable opportunity set. Meanwhile, deal spreads stay tighter, which is
supportive of performance of existing trades. Pressure to grow top-line revenue, industry consolidation opportunities in stressed sectors and large cash levels still keep the case for M&A intact. We view the low directionality and net exposure of the strategy favorably.
Distressed The number of issuers under distressed conditions stay near average levels, suggesting a reasonable opportunity set. Default rates are expected to rise modestly, adding to opportunity set. Given strong performance recently, we stay neutral, awaiting better entry-points. An unexpected outcome
of any of the upcoming event risks may weigh on valuations of speculative grade issuers.
TA
CTIC
AL T
RA
DIN
G
Global
Macro
Global macro managers should be able to benefit from a good set of trading opportunities – US elections, BREXIT consequences, the timing of the next Fed rate hike, the future of unconventional monetary policy in Europe, Japan and elsewhere, the stabilization of commodity and emerging
markets to name just a few. Inflation expectations are rising, having a cross-asset impact. The current market combination of sufficient market liquidity and benign volatility is also supportive. We have a positive view on the style and see its tactical nature and low exposure to market directionality as additionally appealing.
Managed
Futures
(CTA)
Though volatility levels are still modest, trend strength rose from very low levels across most asset classes in October. Strong trends were observed in some major US instruments (US treasuries, S&P 500, US dollar index) with markets factoring in a December Fed rate hike. Going forward, an unexpected outcome from event risks may spur higher volatility and directional movement. We view managed futures positively since they are typically less correlated to other strategies and can benefit from an increase in volatility.
RE
LA
TIV
E V
ALU
E
Fixed
Income
Arbitrage
Repricing of Fed rate hike expectations, ECB easing, as well as negative rates in several economies provide opportunities for classical fixed income
arbitrage strategies. The recent drop in fixed-income volatility is also supportive of performance. The search for yield and continued ECB/BoJ
easing is supportive of credits. We are positive on Fixed-Income Arbitrage strategies, preferring corporate arbitrage and structured credit related styles over classic fixed income arbitrage funds which are vulnerable to a potential volatility spike.
Convertible
Arbitrage
With implied volatility rising, the valuation case for convertible bonds is more neutral now. Yet, yield differentials are better compared to traditional
bonds, while equity market delta is at reasonable levels. The search for yield is supportive for convertible bonds. However, with limited return expectations from equities, we prefer to stay neutral and wait for better entry opportunities.
Equity
Market
Neutral
We have a positive stance on the strategy. Very low net exposure to broader markets help reduce drawdowns during corrections and also provides uncorrelated returns. Low inter-stock correlations are also supportive. Overall we maintain our positive stance. However, an unexpected event
outcome could lead to a volatility spike and remains a risk factor.
4
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016 5
Investment Strategy overview
Source: Credit Suisse
Comment
We remain neutral on fixed income. Long-dated government bond yields rose over the past month, in part driven by a continued rise in inflation expectations (especially in UK due to a depreciating pound and concerns over a “hard Brexit”). However, given dull growth and productivity outlook, we see less
upside in government bond yields. Within the asset class, financial and emerging market debt is best positioned for now
Fixed Income
Asset Category
Equities We keep the negative view on global equities amid political risks and looming Fed tightening. The
consensus earnings outlook (around 13% over next twelve months) also seems too optimistic and is likely to be downgraded. EM, Australia and Switzerland remain our preferred regions. We recently
closed our underperform view on the UK, while keeping the underperform view on EMU.
Financial market fundamentals have improved, with global growth momentum continuing to pick-up since February. Emerging markets (EMs) have stabilized further on the back of more resilient commodity prices and EM currencies. Advanced economies continue to witness only modest growth levels though. Arguably, political concerns weigh on sentiment. Meanwhile, US headline inflation is set to rise meaningfully, with the Fed expected to hike once in December and twice over 2017
Overview
Foreign Exchange Although the Fed is likely to hike this year, the tightening path should remain shallow. It is therefore still too early to become bullish on USD, in our view. We maintain our neutral GBP view versus USD, EUR and CHF. We expect less urgency for the Bank of England to expand its already very accommodative
monetary policy and GBP’s cheap valuation should limit further weakness. We are positive on the EM FX index, driven by a supportive valuation and positive technicals.
Alternative Investments Notwithstanding several key event risks until year-end, our hedge fund barometer suggests
fundamentals stay favorable. Expansionary business sentiment, range-bound volatility levels and low systemic risk levels all contribute to a positive backdrop. The view is neutral on commodities as the
rebalancing process takes time and carry is an obstacle. We are neutral on real estate overall, as attractive yield spreads to government bonds are offset by the sector’s interest-rate sensitivity.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
1 Performance Financial Markets
Source: Datastream, Credit Suisse / IDC 6
Indices (Regions) Price Chg 1M Chg 6M Chg YTD Chg 1 Y Chg 3 Y PE Ratio Indices (Sectors) Price Chg 1M Chg 6M Chg YTD Chg 1 Y Chg 3 Y PE Ratio
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
1 Macro Global Activity
• Despite the fact that market volatility is currently fairly benign, the rest of the year is likely to be rather eventful for financial markets. Political and macro events
including the US Presidential Elections consequences, Brexit negotiations, Italian referendum and a likely US rate hike should all have at least some influence on
financial markets - especially in case of unexpected outcomes.
• While US manufacturing and consumer activity levels have picked-up recently, macro data suggests only a modest GDP pickup compared to Q2 2016. The
economic recovery in the Eurozone is expected to continue, and the ECB will likely extend its easing program at its December meeting. Meanwhile, UK macro
data has been much resilient than expected, though a meaningful slowdown still remains our base case.
• In China, the pace of the slowdown is moderating, with increased government spending and consumption offsetting manufacturing weakness.
Global GDP growth and contributions Global manufacturing PMIs
Rate hike expectations (derived from OIS) World macro momentum indicator
40
45
50
55
60
2010 2011 2012 2013 2014 2015 2016
Global USA Eurozone China 50-threshold
Index
-3
0
3
6
1993 1996 1999 2002 2005 2008 2011 2014
China Developing Asia USAJapan Eurozone Latin AmericaEastern Europe Other countries World
Last datapoint: 30.09.2016 Last datapoint: 30.09.2016
Last datapoint: 31.10.2016 Last datapoint: 31.10.2016
-60
-40
-20
0
20
40
60
Fed ECB BoE SNB BoJ BoC RBA RBNZ
Expected change in short-term interest rates over 12 months, current
7 days ago
1 month ago
basis points*
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
Nov 15 Jan 16 Mar 16 May 16 Jul 16 Sep 16
Brazil China Germany India Japan Russia USA others total
#Std Dev
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
1 Macro and Traditional Assets Financial Markets
Equities Fixed Income
• Our cross-asset risk indicator has been at the lowest level for this year, before rebounding into the US election. Risk indicators for Japan and EMs have falling, with volatility staying particularly low in gold and copper (as of end-October). Global liquidity levels stay rather moderate
Credit Suisse Global Financial Market Risk Indicator Implied volatilities across asset classes
Last datapoint: 31.10.2016 Last datapoint: 31.10.2016
Last datapoint: 31.10.2016 Last datapoint: 31.10.2016
-8
-6
-4
-2
0
2
4
6
Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15
Alternative Investment Strategy
Source: Datastream, Credit Suisse / IDC
Broad Hedge Funds
60
70
80
90
100
110
120
130
140
Dec 07 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15
Credit Suisse Hedge Fund IndexHFRX Global IndexHFRI Fund of Funds Composite IndexHFRU Hedge Fund Composite IndexSimple average of CS Hedge Fund, HFRX Global, HFRI FoF and HFRU (in USD)
Indexed performance in USD, December 2007 = 100
Last datapoint: 30.09.2016
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
Hedge Fund performance compared to global equity and bond market performance
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD
Hedge Funds (average index of CS Hedge Fund, HFRX Global Index, HFRI FoF and HFRU (in USD)
MSCI AC World TR in USD
Barclays Global Aggregate
Annual total return across asset classes
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
2 Hedge Funds (broad) Positioning
Hedge Funds: Positioning
-60
-40
-20
0
20
40
60
S&P 500
2YR T-Note
5YR T-Note
10YR T-Note OIL
COPPERGOLD
SILVEREUR
USDCHF
JPY
02.11.2016 05.10.2016
%
Hedge Funds: Positioning
Future WoW % Change 02. Nov 4W % Change 05. Okt
S&P 500 Decreased Long 0.00 i S&P 500 Increased Long 0.8 h
2YR T-Note Shifted Short to Long 3.52 M 2YR T-Note Decreased Long -3.5 ii
5YR T-Note Decreased Short 1.38 i 5YR T-Note Increased Short -0.6 h
10YR T-Note Increased Long 0.25 h 10YR T-Note Decreased Long -2.0 i
OIL Decreased Long -0.13 i OIL Increased Long 1.6 h
COPPER Decreased Short 0.19 i COPPER Shifted Long to Short -6.9 L
GOLD Decreased Long -0.33 i GOLD Decreased Long -4.2 ii
SILVER Decreased Long -1.88 i SILVER Decreased Long -12.3 iii
EUR Decreased Short 0.00 i EUR Increased Short -2.1 h
USD Increased Long 5.27 hh USD Increased Long 37.9 hhh
CHF Decreased Short 0.00 i CHF Increased Short -21.0 hhh
JPY Decreased Long 0.00 i JPY Decreased Long -14.6 iii
Change one week as of 02.11.2016
Positioning Positioning
Change over last 4 weeks since 05.10.2016
Hedge Funds: Leverage
• Hedge funds (as measured on CS prime services platform) continue to maintain slightly above average leverage levels compared to the past year • Speculators are cutting back on long positions in US government bonds • Speculators have increased long positions in the US dollar, while reducing long positions in precious metals ahead of a potential rate hike in December
Jan 08 Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
CS Hedge Fund Index Redemption Indicator inverse (r.h.s.)
3.40%
CS Hedge Fund Index Redemption Indicator (%)
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
2 Hedge Funds (broad) Equity Exposure of Hedge Fund Strategies
Beta exposure by strategy
Long exposure to MSCI World: Fundamental Long exposure to MSCI World: Tactical and Relative Value
Source: HFR, Credit Suisse / IDC 14
Last datapoint: 30.09.2016 Last datapoint: 30.09.2016
00.100.200.300.400.500.60
36m rolling beta Stock Market Exposure* by Strategy
Sept. 2015 Sept. 2016
* vs. MSCI AC World
0
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
Jan 04 Jan 06 Jan 08 Jan 10 Jan 12 Jan 14 Jan 16
36m rolling betaLong exposure to MSCI World: Fundamantal Strategies
Long/Short Equity Emerging Market Event Driven Index
Distressed Debt Index Merger Arbitrage Index
-0.60
-0.40
-0.20
0
0.20
0.40
0.60
0.80
1.00
1.20
Jan 04 Jan 06 Jan 08 Jan 10 Jan 12 Jan 14 Jan 16
36m rolling beta Long exposure to MSCI World: Tactical and Relative Value
Global Macro Managed Futures Equity Market Neutral Index
Convertible Arbitrage Index Fixed Income Arbitrage Index
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
Business Cycle Systemic Risks Volatility Liquidity
Hedge Fund Barometer [2.55]
Source: Bloomberg, Datastream, Credit Suisse/IDC
2 Hedge Funds (broad) Hedge Fund Barometer
15
Last datapoint: 31.10.2016
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016 Source: Bloomberg, Datastream, Credit Suisse/IDC
16
2 Hedge Funds (broad) Hedge Fund Barometer
Hedge Fund Barometer and CS Hedge Fund Index returns
Last datapoint: 31.10.2016
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016 Source: Bloomberg, Datastream, Credit Suisse/IDC
Volatility Volatility regimes and style performance
Liquidity regimes and style performance Liquidity conditions
2 Hedge Funds (broad) Hedge Fund Barometer (Risk Factor Set I)
0
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
Jan 92 Jan 96 Jan 00 Jan 04 Jan 08 Jan 12 Jan 16
Liquidity composite 13w MAV composite
Liquidity tight
Liquidity plentiful
Percentile rank value
17
Last datapoint: 30.09.2016
Last datapoint: 30.09.2016
Last datapoint: 31.10.2016
Last datapoint: 31.10.2016
9%
-4%
-7%
-12%
17%15%
12%
6% 6% 6%
3%1%
20%
16%
12%
8%
Tactical Tra
din
g
Rela
tive
Valu
e
Eve
nt D
rive
n
Directional
Directional
Eve
nt D
rive
n
Rela
tive
Valu
e
Tactical Tra
din
g
Rela
tive
Valu
e
Eve
nt D
rive
n
Directional
Tactical Tra
din
g
Directional
Eve
nt D
rive
n
Tactical Tra
din
g
Rela
tive
Valu
e
High volatility
(increasing)
High volatility
(decreasing)
Low volatility
(increasing)
Low volatility
(decreasing)
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
Global manufacturing PMIs
Systemic risk overview
PMI regimes and style performance
Conclusion
Source: Bloomberg, Datastream, Credit Suisse/IDC
2 Hedge Funds (broad) Hedge Fund Barometer (Risk Factor Set 2)
The Hedge fund barometer stays in favorable territory going into the event risk period (2.55).
Analysts have continued to upgrade corporate earnings
expectations with the expansionary business sentiment aiding barometer readings.
The relatively benign volatility environment continued to be
supportive, though markets appear too complacent considering event risks looming.
Liquidity levels are slightly lower due to recent uptick in bond yields. Yet we are not too worried, given accommodative stance of most central banks.
Systemic risks stay low. Modest beta exposure to equities should result in more uncorrelated returns and better diversification.
40
45
50
55
60
2010 2011 2012 2013 2014 2015 2016
Global USA Eurozone China 50-threshold
Index
18
Last datapoint: 31.10.2016
Last datapoint: 31.10.2016
Last datapoint: 31.10.2016
12% 12%
9%8%
12%
6%5% 5%
1%1%
-5%
-9%
17%16%
13%
2%
Eve
nt
Drive
n
Directional
Rela
tive
Valu
e
Tactical Tra
din
g
Tactical Tra
din
g
Directional
Rela
tive
Valu
e
Eve
nt
Drive
n
Tactical Tra
din
g
Eve
nt
Drive
n
Directional
Rela
tive
Valu
e
Directional
Eve
nt
Drive
n
Rela
tive
Valu
e
Tactical Tra
din
g
PMI > 50
(increasing)
PMI > 50
(decreasing)
PMI < 50
(decreasing)
PMI < 50
(increasing)
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016 Source: Bloomberg, Datastream, Credit Suisse/IDC
Strategy return dispersion Correlation between strategy returns
Beta sensitivity Performance differential between top and bottom quartile managers
2 Hedge Funds (broad) Hedge Fund Barometer (Systemic Risk Components)
19
Last datapoint: 30.09.2016
Last datapoint: 30.09.2016 Last datapoint: 30.09.2016
Last datapoint: 30.09.2016
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11 Dec 13 Dec 15
%
Return Dispersion Among Hedge Fund Strategies
0
0.1
0.2
0.3
0.4
0.5
0.6
Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11 Dec 13 Dec 15
36M rolling beta
CS Hedge Fund Index Beta Exposure to MSCI World
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11 Dec 13 Dec 15
Percentile
Performance differential between top- and bottom- quartiles hedge fund managers
0
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
Dec 97 Dec 99 Dec 01 Dec 03 Dec 05 Dec 07 Dec 09 Dec 11 Dec 13 Dec 15
12M pairwise correlations between monthly returns of Hedge Fund Strategies
Special topic: Hedge Fund drawdowns
and correlations
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
3 Special Topics Hedge fund drawdowns vs. global equities
• Over the last 12 months hedge funds had an above average participation in negative equity returns. They captured more than 30% of negative equity market
performance. This is significantly above the longer-term average. At the same time however funds were not able to capture the upside to the same extent. The
participation during positive months was much lower. Hedge funds only captured 11% of realized upside in equity markets over the last year. This is significantly
below the historical average and is one reason for poor performance recently.
• One reason for this suboptimal performance is that we only had very brief equity market rallies that turned abruptly. So when managers adjusted their exposure
when markets improved, the rally already turned again. This flip-flopping in market performance and the lack of longer-term trends make it difficult for managers
to react. As a result of this, mangers have generally scaled down their exposure to equity markets.
• For hedge fund performance to improve, we would need longer lasting trends and less abrupt market turns. We stick to our total return expectation of 2-4% for
the Credit Suisse Hedge Fund Index for the full year 2016 and now have a balanced view across styles.
Hedge Funds during months of negative equity market performance Hedge Funds during months of positive equity market performance
0%
5%
10%
15%
20%
25%
30%
35%
Last 5 years Last 3 years Last 12 months
Average participation of hedge funds to World Equities in months ofnegative equity market performance
0%
5%
10%
15%
20%
25%
30%
35%
Last 5 years Last 3 years Last 12 months
Average participation of hedge funds to World Equities in months of positiveequity market performance
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
3 Special Topics Hedge fund correlations vs. global equities and bonds
• The correlation between hedge funds (as measured by the Credit Suisse Hedge Fund Index) and equities (as measured by MSCI AC world) has declined slightly
over the last years, while their correlation with bonds has increased. Apparently, hedge funds have reduced risk.
• Greater institutional asset flows have led to a more conservative investment profile. Increased concentration of assets at top firms also help explain this trend.
Hedge fund correlation with equities Hedge fund correlation with bonds
between monthly returns of CS Hedge Fund Index vs. MSCI AC World and Barclays Global Aggregate Bond Index
between monthly returns of CS Hedge Fund Index vs. MSCI AC World between monthly returns of CS Hedge Fund Index vs. Barclays Global Aggregate Bond Index
Fundamental Strategies
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
Opportunities
Long/Short Equity
• Temporary volatility spikes create attractive
opportunities in fundamentally sound
companies
• Very low inter-stock correlations support
stock-picking strategies.
Event Driven / Merger Arbitrage:
• Consolidation opportunities in sectors
undergoing structural changes
• Tepid top-line growth, limited opportunities to
deploy cash and low funding costs for top-
rated companies keep the case for M&A
growth intact.
Event Driven / Distressed:
• Stable commodity prices are supportive of
valuations of related issuers
Challenges
Long/Short Equity
• Equity beta returns are likely to be unsupportive,
alpha (stock selection) remains a key source of
returns.
• Macro uncertainty may spill over to equity
markets more pronouncedly, potentially arising
from US presidential elections, a Fed rate hike
and Brexit negotiations
• Earning growth has been tepid, and valuations
are not cheap.
Event Driven Distressed:
• Speculative-grade issuers vulnerable to re-
pricing (especially after strong run-up), given
tighter lending standards, lower recovery rates,
especially in case of a risk-off environment
• Liquidity remains a concern in certain Fixed
Income and credit segments.
Event Driven Merger Arbitrage:
• Deal activity shows signs of deceleration from
high levels. Crowded individual deals are a risk.
4 Fundamental Strategies Opportunities and challenges
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
4 Long Short Equity Market exposure
10
15
20
25
30
35
40
45
50
55
60
Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Dec 15
0.10
0.20
0.30
0.40
0.50
0.60
0.70
VIX Index Long/short ratio of long/short equity funds (r.h.s.)
Level (VIX) Long/short ratio
-100
100
300
500
700
1991 1994 1997 2000 2003 2006 2009 2012 2015
20%
25%
30%
35%
40%
45%
50%
AUM: Equity long short
Net capital flows: Equity long short
% of industry assets
USD bn % Assets
Assets & Capital flows
Long/short ratio (Long Short Equity)
Volatility of Long / Short Equity Strategy Returns
Net Long Exposure to Index
Source: CS Prime Services, HFR, Bloomberg, Datastream, Credit Suisse/IDC
0
5
10
15
20
25
Jun 94 Jun 98 Jun 02 Jun 06 Jun 10 Jun 14
Standard deviation of CS Long/Short Equity Index Returns
Long-Term Average
6M rolling standard deviation (%)
26
Last datapoint: 30.09.2016 Last datapoint: 30.06.2016
Last datapoint: 30.09.2016 Last datapoint: 30.09.2016
• Market exposure of long-short equity funds stays modest (on aggregate), preventing larger drawdowns, while also limiting participation in the recovery.
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
Sep 03 Sep 05 Sep 07 Sep 09 Sep 11 Sep 13 Sep 15
36m rolling beta
CS Long/Short Equity Index net long exposure to MSCI AC World
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
4 Long Short Equity Equity Markets
Stylized business cycle and typical asset class performance Credit Suisse Macro Momentum Indicator
Over-heating Slowdown Contraction Recovery
Sto
cks
Co
mm
Bo
nd
s
Cash
Bo
nd
s
Sto
cks
Co
mm
Cash
Bo
nd
s
Co
mm
Sto
cks
Cre
dit
s
Cash
Co
mm
Bo
nd
s
Outperform
Underperform
-2.5
-2.0
-1.5
-1.0
-0.5
0
0.5
1.0
Feb 00 Feb 02 Feb 04 Feb 06 Feb 08 Feb 10 Feb 12 Feb 14 Feb 16
World Macro Momentum Indicator Long-Term Average
Real-time indicator of economic momentum
Yield Difference – US equities versus US long-term Treasuries P/E ratio of US equities
-202468
1012141618
Nov
76
Nov
80
Nov
84
Nov
88
Nov
92
Nov
96
Nov
00
Nov
04
Nov
08
Nov
12
Nov
16
Spread UST 10Y yield S&P 500 Dividend yield
%
5
10
15
20
25
Nov 86 Nov 90 Nov 94 Nov 98 Nov 02 Nov 06 Nov 10 Nov 14
Last datapoint: 31.10.2016 Last datapoint: 31.10.2016
• Macroeconomic and political risks are still highest in the UK and the Eurozone, due to Brexit. We are therefore maintaining our negative view on these two
markets over the next 3–6 months.
• We continue to prefer emerging markets, Switzerland, and Australia, amid improved fundamentals.
• Additionally, we continue to prefer IT and healthcare, and expect consumer discretionary, consumer staples and industrials to underperform.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
Last datapoint: 31.10.2016 Last datapoint: 31.10.2016
• Inter-stock correlations stay below average, keeping conditions favorable for stock-picking. Declining return dispersion among stocks is additionally supportive.
• However, we expect greater macro influence on equities as political and macro risks stay high (given imminent Fed rate hike and US presidential elections).
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
Last datapoint: 30.09.2016 Last datapoint: 30.09.2016
• Range-bound market volatility, declining return dispersion among stocks as well as low inter-stock correlations are supportive for short-term performance of the
style. However while corporate earnings are more or less flat YoY in Q3 2016, consensus earnings growth expectations are too high in our view , leaving the
market vulnerable, particularly as valuation multiples are at the higher end of the normal range.
• As a result we are expecting limited support from broader equity market beta and now have a neutral outlook for Long/Short equity strategies. Political and
macro risks are not insignificant. Within Long/Short equity we prefer funds with opportunistic or lower net exposure.
0
100
200
300
400
500
600
700
Dec 93 Dec 97 Dec 01 Dec 05 Dec 09 Dec 13
-15
-10
-5
0
5
10
15
Returns: CS Eq. Long Short Index (r.h.s.)CS Eq. Long Short IndexCS Hedge Fund IndexMSCI World Index
Sep 2016Until:
Index Monthly returns in %
58%
-35%22%
-66%-80%
-40%
0%
40%
80%
During positive months of MSCI
AC World
During negative months of MSCI
AC World
% CS Long/Short Equity Index returns as percentage of
MSCI AC World returns
Since 1999 Last 12 months
-0.10
-0.08
-0.06
-0.04
-0.02
0
0.02
0.04
0.06
0.08
0.10
Sep 15 Nov 15 Jan 16 Mar 16 May 16 Jul 16 Sep 16
85
90
95
100
105
110
115
CS Long/Short Equity Index(r.h.s.) MSCI World TR(r.h.s.)
monthly returns in % Index rebalanced (t-12)
11.36% (volatilty) :
(volatilty) :
MSCI World TR:
CS Long Short Equity Index : -1.70%
13.40%
4.76%
Net ROR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
Last datapoint: 30.09.2016 Last datapoint: 30.06.2016
Last datapoint: 30.06.2016 Last datapoint: 30.09.2016
0
5
10
15
20
25
30
Jun 94 Jun 98 Jun 02 Jun 06 Jun 10 Jun 14
Standard deviation of CS Emerging Market Index returns Long-Term Average of Risk
Standard Deviation, in %
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
Sep 03 Sep 05 Sep 07 Sep 09 Sep 11 Sep 13 Sep 15
36m rolling beta
CS Emerging Market Index net long exposure to MSCI AC World
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
• Recent economic data in EMs has been better, while capital inflows have been strong. Equity valuations of EMs lower than for developed markets and EMs
should be relatively immune from a Brexit related slowdown in UK/ Europe.
• The stabilization in the US dollar index and in commodity prices is also helpful for performance, especially for commodity exporting countries. We upped our view
on the strategy to neutral recently noting attractive opportunities in countries with reform momentum.
• A potential Chinese slowdown and a renewed drop in commodity prices are key risk factors.
Last datapoint: 30.09.2016 Last datapoint: 30.06.2016
Last datapoint: 30.09.2016 Last datapoint: 30.09.2016
-10
-5
0
5
10
15
20
25
1991 1994 1997 2000 2003 2006 2009 2012
0.00%
0.50%
1.00%
1.50%
2.00%
AUM: Merger arbitrage
Net capital flows: Merger arbitrage
% of industry assets
USD bn % Assets
0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
Jun 94 Jun 98 Jun 02 Jun 06 Jun 10 Jun 14
Standard deviation of CS Risk Arbitrage returns Long-Term Average of Risk
0
0.05
0.10
0.15
0.20
0.25
0.30
Sep 03 Sep 05 Sep 07 Sep 09 Sep 11 Sep 13 Sep 15
36m rolling beta
CS Merger Arbitrage Index Index net long exposure to MSCI AC World
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
Corporates under pressure to grow top line
7 Merger Arbitrage Return Drivers
M&A Global (proxy)
M&A rolling average deal size vs. S&P 500
M&A Global (proxy)
• The number and the value of M&A transactions globally has slowed down somewhat in 2016. However the opportunity set for merger arbitrage managers
remains sufficiently large and provides a reasonable opportunity set. Meanwhile, deal spreads stay tighter, which is supportive of performance of existing trades.
• Tepid top-line growth, limited capex opportunities, consolidation opportunities in stressed sectors and high corporate cash levels keep the case for M&A growth
intact. We view favorably the low directionality and net exposure of the strategy
Last datapoint: 30.09.2016 Last datapoint: 30.06.2016
Last datapoint: 30.09.2016 Last datapoint: 30.09.2016
-20
30
80
130
180
230
1991 1994 1997 2000 2003 2006 2009 2012 2015
3%
4%
5%
6%
7%
8%
9%
10%
AUM: ED distressed debt
Net capital flows: ED distressed debt
% of industry assets
USD bn % Assets
0
2
4
6
8
10
12
14
16
Jun 94 Jun 98 Jun 02 Jun 06 Jun 10 Jun 14
Standard Deviation of CS Distressed Index returns Long-Term Average of Risk
6M rolling standard deviation, in %
0.10
0.15
0.20
0.25
0.30
0.35
0.40
Sep 03 Sep 05 Sep 07 Sep 09 Sep 11 Sep 13 Sep 15
36m rolling beta
CS Distressed Debt Index Index net long exposure to MSCI AC World
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
Number of Distressed Issuers Default Rate Forecasts
Source: S&P LCD, Credit Suisse / IDC
Speculative-grade bond spreads: Deviation from average levels Upgrades-to-Downgrades Ratio of US and EUR high yield issuers
8 Event Driven - Distressed Return Drivers • The number of issuers under distressed conditions stay near average levels, suggesting a reasonable opportunity set.
• However, performance of distressed strategies continues to benefit from higher valuations of speculative issuers with the fundamental back-drop improving
recently.
• Default rates are expected to rise modestly, adding to opportunity set. However, low recovery rates are a concern. Given strong performance recently, we stay
neutral, awaiting better entry-points. An unexpected outcome in one of the upcoming event risks may weigh on valuations of speculative grade issuers.
51
Last datapoint: 31.10.2016
Last datapoint: 31.07.2016
Last datapoint: 26.08.2016
Last datapoint: 31.10.2016
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
CS Distressed Index: Table returns
8 Event Driven - Distressed Performance Review
CS Distressed Index vs. MSCI World
12-month performance vs. CS High yield Index Upside / Downside capture ratios
Source: Bloomberg, Credit Suisse / IDC 52
Last datapoint: 30.09.2016 Last datapoint: 30.09.2016
Last datapoint: 30.09.2016
0
100
200
300
400
500
600
700
800
Dec 93 Dec 97 Dec 01 Dec 05 Dec 09 Dec 13
CS Distressed Index CS Hedge Fund Index MSCI World Index
Sep 2016Until:
Index Monthly returns in %
71%
-33%
20%
-42%
-80%
-40%
0%
40%
80%
During positive months of CS High
Yield Index
During negative months of CS High
Yield Index
% CS Distressed Index returns as percentage of CS
High Yield Index returns
Since 1999 Last 12 months85
90
95
100
105
110
115
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
Sep 15 Nov 15 Jan 16 Mar 16 May 16 Jul 16 Sep 16
CS Distressed Index(r.h.s.) CS High Yield Index(r.h.s.)
monthly returns in % Index rebalanced (t-12)
CS High Yield (return) :
Distressed Debt (return) :
12.47%
0.24%
(volatality):
(volatality):
8.49%
3.48%
Net ROR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
Last datapoint: 30.09.2016 Last datapoint: 30.06.2016
Last datapoint: 30.09.2016 Last datapoint: 30.09.2016
0
2
4
6
8
10
12
14
16
Jun 94 Jun 98 Jun 02 Jun 06 Jun 10 Jun 14
Standard Deviation of CS Global Macro Index returns Long-Term Average of Risk
6M rolling standard deviation, in %
-0.80
-0.60
-0.40
-0.20
0
0.20
0.40
0.60
0.80
1.00
Sep 03 Sep 05 Sep 07 Sep 09 Sep 11 Sep 13 Sep 15
36m rolling beta
CS Global Macro Index net long exposure to MSCI AC World
CS Global Macro Index net long exposure to Barclays Agg. Bond Index (Unhedged)
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
Policy rates in developed economies
9 Global Macro Return Drivers
• Global macro managers should be able to benefit from a good set of trading opportunities – US election consequences, BREXIT consequences, the timing of
the next Fed rate hike, the future of unconventional monetary policy in Europe, Japan and elsewhere, the stabilization of commodity and emerging markets to
name just a few. Inflation expectations are rising, which has a cross-asset impact. The current market combination of sufficient market liquidity and benign
volatility is also supportive.
• We have a positive view on the style and see its tactical nature and low exposure to market directionality as additionally appealing.
Last datapoint: 30.09.2016 Last datapoint: 30.06.2016
Last datapoint: 30.09.2016 Last datapoint: 30.09.2016
0
2
4
6
8
10
12
14
16
Jun 94 Jun 98 Jun 02 Jun 06 Jun 10 Jun 14
Standard Deviation of CS Managed Futures Index Returns Long-Term Average of Risk
6M rolling standard deviation, in %
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
Directional Strength across major asset classes* Performance of long- and short-term managed futures sub-strategies
30-day GSCI Sector Correlations vs. 1yr mov. average Rolling correlation of USD/ EM FX with US 10Y Treasury yield
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
Dec 00 Dec 02 Dec 04 Dec 06 Dec 08 Dec 10 Dec 12 Dec 14
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
EMEA-UST ASIA-UST LATAM-UST US 10Y Treasury yield (r.h.s)
Rolling correlation of 10Y US Treasury yield with USD/ EM currency basket in %
10 Managed Futures Return Drivers • Though trading ranges are narrow, trend strength rose from very low levels across most asset classes in October. Strong trends were observed in some major
US instruments (US treasuries, S&P 500, US dollar Index) with markets factoring in a December Fed rate hike. Cross-asset correlations stay high
• Going forward, an unexpected outcome from event risks may spur higher volatility and directional movement. Brexit risks too are unfolding gradually, having an
impact on GBP assets.
• We view managed futures positively since they are typically less correlated to other strategies and can benefit from an increase in volatility.
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
11 Fixed Income Arbitrage Return Drivers
• Repricing of Fed rate hike expectations, ECB easing, as well as negative rates in several economies provide opportunities for classical fixed income arbitrage
strategies. The BoJ’s ‘yield curve control’ policy provides an anchor to nominal long-term yields and seeks to dampen market volatility
• The search for yield and continued ECB/BoJ easing is supportive of credits.
• We are positive on Fixed-Income Arbitrage strategies, preferring corporate arbitrage and structured credit related styles over classic fixed income arbitrage funds
which are vulnerable to a potential volatility spike.
73 Source: IS Fixed Income Strategy, Bloomberg, Credit Suisse/IDC
US Yield Curve FOMC projections vs. futures curve
Investment grade bonds fair value 2Y Government Bond yields in advanced economies
Last datapoint: 31.10.2016 Last datapoint: 31.10.2016
Last datapoint: 30.09.2016 Last datapoint: 31.10.2016
-1.5
-1.0
-0.5
0
0.5
1.0
1.5
2.0
Jan 09 Jan 10 Jan 11 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16
USA Germany UK Japan Switzerland
Yield in %
-1.0
-0.5
0
0.5
1.0
1.5
2.0
2.5
3.0
Jan 89 Jan 93 Jan 97 Jan 01 Jan 05 Jan 09 Jan 13
10Yr-2Yr Yield Spread (US Treasuries)
%
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
30Y mortgage rates Home prices across major US cities
Refinancing applications vs. 30Y mortgage rates US speculative yield vs. US 10Y yield
Last datapoint: 30.09.2016 Last datapoint: 31.10.2016
Last datapoint: 30.09.2016 Last datapoint: 30.09.2016
0
2
4
6
8
10
12
14
16
18
20
Jun 94 Jun 98 Jun 02 Jun 06 Jun 10 Jun 14
Standard Deviation of CS Convertible Arbitrage Index Returns Long-Term Average of Risk
6M rolling standard deviation, in %
0
0.20
0.40
0.60
0.80
1.00
1.20
Sep 03 Sep 05 Sep 07 Sep 09 Sep 11 Sep 13 Sep 15
36m rolling beta
CS Convertible Arbitrage Index Index net long exposure to MSCI AC World
CS Convertible Arbitrage Index Index net long exposure to Barclays Global HY Bond Index
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
Global convertible bond issuance
12 Convertible Arbitrage Return Drivers
• With implied volatility rising somewhat, the valuation case for convertible bonds is more neutral now. Yet, yield differentials are better compared to traditional
bonds, while equity market delta is at reasonable levels. The search for yield is also broadly supportive for convertible bonds.
• With limited return expectations from equities, we prefer to stay neutral at this point and wait for better entry opportunities.
Last datapoint: 30.09.2016 Last datapoint: 30.09.2016
• Very low net exposure to broad equity indices enables much lower drawdowns and more uncorrelated returns. The currently low inter-stock correlations are
• supportive for the strategy.
• Volatility looks set to remain close to average levels in the base case. We thus have a positive on the strategy. However, an unexpected event outcome could
lead to a temporary volatility spike and thus remains a risk factor.
24%
-13%9%
-39%-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
During positive months of MSCI
AC World
During negative months of MSCI
AC World
% CS Equity Market Neutral Index returns as percentage
of MSCI AC World returns
Since 1999 Last 12 months
0
100
200
300
400
500
600
Jan 94 Jan 98 Jan 02 Jan 06 Jan 10 Jan 14
-50
-40
-30
-20
-10
0
10
Returns: CS Eq. Market Neutral Index (r.h.s.) CS Eq. Market Neutral Index CS Hedge Fund Index MSCI World Index
Sep 2016Until:
Index Monthly returns in %
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Sep 15 Nov 15 Jan 16 Mar 16 May 16 Jul 16 Sep 16
85
90
95
100
105
110
115
CS Market Neutral Index(r.h.s.) MSCI World TR(r.h.s.)
monthly returns in % Index rebalanced (t-12)
MSCI World return :
Market Neutral return :
11.36%
-2.02%
(volatility) :
(volatility) :
13.40%
4.11%
Appendix
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
14 Appendix Global Activity
Global economy – Inflation and interest rates
Inflation forecasts Inflation: Current vs. averages
Rates expectations (derived from OIS) 5-year real rates
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
Risk warning Every investment involves risk, especially with regard to fluctuations in value and return. If an investment is denominated in a currency other than your base currency, changes in the rate of exchange may have an adverse effect on value, price or income. For a discussion of the risks of investing in the securities mentioned in this document, please refer to the following Internet link: https://research.credit-suisse.com/riskdisclosure This document may include information on investments that involve special risks. You should seek the advice of your independent financial advisor prior to taking any investment decisions based on this document or for any necessary explanation of its contents. Further information is also available in the information brochure “Special Risks in Securities Trading” available from the Swiss Bankers Association.
Past performance is not an indicator of future performance. Performance can be affected by commissions, fees or other charges as well as exchange rate fluctuations.
Financial market risks
Historical returns and financial market scenarios are no guarantee of future performance. The price and value of investments mentioned and any income that might accrue could fall or rise or fluctuate. Past performance is not a guide to future performance. If an investment is denominated in a currency other than your base currency, changes in the rate of exchange may have an adverse effect on value, price or income. You should consult with such advisor(s) as you consider necessary to assist you in making these determinations. Investments may have no public market or only a restricted secondary market. Where a secondary market exists, it is not possible to predict the price at which investments will trade in the market or whether such market will be liquid or illiquid.
Emerging markets
Where this document relates to emerging markets, you should be aware that there are uncertainties and risks associated with investments and transactions in various types of investments of, or related or linked to, issuers and obligors incorporated, based or principally engaged in business in emerging markets countries. Investments related to emerging markets countries may be considered speculative, and their prices will be much more volatile than those in the more developed countries of the world. Investments in emerging markets investments should be made only by sophisticated investors or experienced professionals who have independent knowledge of the relevant markets, are able to consider and weigh the various risks presented by such investments, and have the financial resources necessary to bear the substantial risk of loss of investment in such investments. It is your responsibility to manage the risks which arise as a result of investing in emerging markets investments and the allocation of assets in your portfolio. You should seek advice from your own advisers with regard to the various risks and factors to be considered when investing in an emerging markets investment.
Alternative investments
Hedge funds are not subject to the numerous investor protection regulations that apply to regulated authorized collective investments and hedge fund managers are largely unregulated. Hedge funds are not limited to any particular investment discipline or trading strategy, and seek to profit in all kinds of markets by using leverage, derivatives, and complex speculative investment strategies that may increase the risk of investment loss. Commodity transactions carry a high degree of risk and may not be suitable for many private investors. The extent of loss due to market movements can be substantial or even result in a total loss. Investors in real estate are exposed to liquidity, foreign currency and other risks, including cyclical risk, rental and local market risk as well as environmental risk, and changes to the legal situation.
Interest rate and credit risks
The retention of value of a bond is dependent on the creditworthiness of the Issuer and/or Guarantor (as applicable), which may change over the term of the bond. In the event of default by the Issuer and/or Guarantor of the bond, the bond or any income derived from it is not guaranteed and you may get back none of, or less than, what was originally invested. Volatility Volatility is a measure for variation of price of a financial instrument. High volatility investments may experience sudden and large falls in their value causing losses when that investment is realized. .
89
MARKETING MATERIAL – THIS IS NOT INVESTMENT RESEARCH
Please contact your Credit Suisse representative for more information
Historical performance indications and financial market scenarios are not reliable indicators of current or future performance
November 2016
Investment Strategy Department
Investment Strategists are responsible for multi-asset class strategy formation and subsequent implementation in CS’s discretionary and advisory businesses. If shown, Model Portfolios are provided for illustrative purposes only. Your asset allocation, portfolio weightings and performance may look significantly different based on your particular circumstances and risk tolerance. Opinions and views of Investment Strategists may be different from those expressed by other Departments at CS. Investment Strategist views may change at any time without notice and with no obligation to update. CS is under no obligation to ensure that such updates are brought to your attention. From time to time, Investment Strategists may reference previously published Research articles, , including recommendations and rating changes collated in the form of lists. All Research articles and reports detailing the recommendations and rating changes for companies and/or individual financial instruments are available on the following internet link: https://investment.credit-suisse.com For information regarding disclosure information on Credit Suisse Investment Banking rated companies mentioned in this report, please refer to the Investment Banking division disclosure site at:
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For further information, including disclosures with respect to any other issuers, please refer to the Credit Suisse Global Research Disclosure site at: https://www.credit-suisse.com/disclosure
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This document is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation or which would subject CS to any registration or licensing requirement within such jurisdiction. References in this document to CS include Credit Suisse AG, the Swiss bank, its subsidiaries and affiliates. For more information on our structure, please use the following link: http://www.credit-suisse.com/who_we_are/en/ NO DISTRIBUTION, SOLICITATION, OR ADVICE: This document is provided for information and illustrative purposes and is intended for your use only. It is not a solicitation, offer or recommendation to buy or sell any security or other financial instrument. Any information including facts, opinions or quotations, may be condensed or summarized and is expressed as of the date of writing. The information contained in this document has been provided as a general market commentary only and does not constitute any form of regulated financial advice, legal, tax or other regulated service. It does not take into account the financial objectives, situation or needs of any persons, which are necessary considerations before making any investment decision. You should seek the advice of your independent financial advisor prior to taking any investment decisions based on this document or for any necessary explanation of its contents. This document is intended only to provide observations and views of CS at the date of writing, regardless of the date on which you receive or access the information. Observations and views contained in this document may be different from those expressed by other Departments at CS and may change at any time without notice and with no obligation to update. CS is under no obligation to ensure that such updates are brought to your attention. FORECASTS
& ESTIMATES: Past performance should not be taken as an indication or guarantee of future performance, and no representation or warranty, express or implied, is made regarding future performance. To the extent that this document contains statements about future performance, such statements are forward looking and subject to a number of risks and uncertainties. Unless indicated to the contrary, all figures are unaudited. All valuations mentioned herein are subject to CS valuation policies and procedures. CONFLICTS: CS reserves the right to remedy any errors that may be present in this document. CS, its affiliates and/or their employees may have a position or holding, or other material interest or effect transactions in any securities mentioned or options thereon, or other investments related thereto and from time to time may add to or dispose of such investments. CS may be providing, or have provided within the previous 12 months, significant advice or investment services in relation to the investments listed in this document or a related investment to any company or issuer mentioned. Some investments referred to in this document will be offered by a single entity or an associate of CS or CS may be the only market maker in such investments. CS is involved in many businesses that relate to companies mentioned in this document. These businesses include specialized trading, risk arbitrage, market making, and other proprietary trading. TAX: Nothing in this document constitutes investment, legal, accounting or tax advice. CS does not advise on the tax consequences of investments and you are advised to contact an independent tax advisor. The levels and basis of taxation are dependent on individual circumstances and are subject to change. SOURCES: Information and opinions presented in this document have been obtained or derived from sources which in the opinion of CS are reliable, but CS makes no representation as to their accuracy or completeness. CS accepts no liability for a loss arising from the use of this document. WEBSITES: This document may provide the addresses of, or contain hyperlinks to, websites. Except to the extent to which the document refers to website material of CS, CS has not reviewed the linked site and takes no responsibility for the content contained therein. Such address or hyperlink (including addresses or hyperlinks to CS’s own website material) is provided solely for your convenience and information and the content of the linked site does not in any way form part of this document. Accessing such website or following such link through this document or CS’s website shall be at your own risk.
90
MARKETING MATERIAL – THIS IS NOT INVESTMENT RESEARCH
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