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Luz Capital Group

The Fixed Income Intelligencer

Volume I, Issue VI

(Fixed Income and Currencies) BUSINESS CYCLE FAVOURED ASSET CLASSES INDICATOR

5 June 2014

EMERGING MARKETS CURRENCIES Emerging Markets Curriencies 52-Week Returns

EM Carry Trade 3800

INDONESIA ICELAND15% CHILE S KOREA THAILAND 10% 5% POLAND PHILIPPINES 0% -5% ARGENTINA S AFRICA -10% INDIA CZECH -15%

LuzCap

3300

Na誰ve

2800

Trade

2300 1800

HUNGARY

TURKEY

COLOMBIA

SINGAPORE

MEXICO BRAZIL

TAIWAN HONG KONG

1300 800

PERU

Indicator is bullish for asset classes (bonds, equities, commodities) crossed by radial red line.

Left, the percentage return on a long position earning interest in each emerging market currency. Right, the performance of a portfolio of 20 major EM currencies. Na誰ve strategy weighs the 20 currencies equally; trade strategy weighs them by total exports and imports as reported by International Monetary Fund; LuzCap strategy selects 5 currencies with a proprietary algorithm. Each rebalanced daily. (USD returns)

G-10 MAJOR CURRENCIES

G10 Currency Strategies

Value

Momentum

2200 2000 1800 1600 1400 1200 1000 800 600

GBP 9.71%

CHF NZD 6.07% 4.84% EUR 2.65%

LuzCap

Carry

Momentum

Value

SEK NOK -1.55% AUD -2.52% CAD JPY -4.41% -5.61% -6.18%

Excess ratio of Spot to PPP 40% 30% 20% 10% 0% NZD

AUD

CHF

EUR

GBP

NOK

CAD

SEK

JPY

-10%

-20%

LuzCap strategy combines carry and value strategies using a proprietary algorithm. Carry strategy goes long the 3 highest interest rate currencies and shorts the 3 lowest. Momentum strategy longs the 3 currencies with highest 52-week nominal currency rate return and shorts the 3 lowest. Value strategy longs the 3 currencies most undervalued as measured by ratio of spot rate to Bloomberg PPP (Purchasing Power Parity) and shorts the 3 most overvalued. All rebalanced daily. (USD returns)

FIXED INCOME STYLES

Global Long Term Bond Indices

Style Premia 2600

1700 1600

LongTerm Govt Prem

2400

US

1500

Corp Prem

2200

Global ex-US

2000

EM

1400

1300

Mortgage Prem

1800

1200

1600

1100

1400

1000

1200

900

1000

800

800

Source: Morningstar. Indices are Long-Term US Government Total Return, US Corporate Bonds Total Return and US Mortgage Total Return

Source: Morningstar. Indices are Long-Term US Government Bond, Emerging Markets Sovereign Bonds and Global Ex-Us Government Bonds.


The Fixed Income Intelligencer SeaGate Capital