Citadele Eastern European Bond Fund. February 2014

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1 Citadele Eastern European Bond Fund February 2014

2 Citadele Asset Management Government of Latvia EBRD Solid shareholder base Regulated by Financial and Capital Market Commission 75% 25% Citadele Bank MiFID and UCITS compliant Independent Investment Process 100% Citadele Asset Management 2

3 Why Citadele Asset Management Established track record since 2001 Three integrated business lines Fund management Portfolio management Pension Fund Management Assets under management EUR 602M* Experienced investment team of 14 specialists Dedicated equity and bond picking strategy in Eastern Europe and the CIS Award winning internationally recognized mutual funds First in Latvia to receive a license to manage Alternative Investment funds *Data as of Dec 31,

4 Citadele Asset Management Fixed Income Unique features Specialists in the evolving Eastern European and CIS debt Cutting edge expertise in the region s corporate debt Bottom-up portfolio formation based on in-house research Flagship Fund - Citadele Eastern European Bond Fund UCITS compliant open-end mutual fund; available in EUR & USD Inception in 2003; fund size EUR 39M* Consistently among top performers in Morningstar peer group* Lipper Europe 2012 Awards - Best Fund in Bond Emerging Market Europe group over 3 years *Data as of Jan 31,

5 5-year Performance Outstanding track-record compared to Morningstar Emerging Europe Bond Category* 3-Year 5-Year 10-Year Overall *Source: Morningstar Data as of Jan 31,

6 Investment Philosophy Eastern European debt markets are rapidly evolving, but market inefficiencies are still present. Therefore, we can add value based on our local expertise and internal research. The most appropriate investment process to achieve superior returns over medium term is bottom-up, benchmark-unaware and based on disciplined, team-based decisions 6

7 Why Eastern European bonds? Eastern Europe ranked the highest in Doing Business 2014 report among other EMs Most significant improvement compared to the other EM Increasing investor interest in the region with debt market capitalization surpassing $450bn Source: Bloomberg Data as of Jan 31,

8 Why Eastern European bonds? Evolving asset class for investors in search of higher yields, attractive risk-adjusted returns and additional portfolio diversification More than half of instruments rated in the investment-grade category Sovereign and especially corporate bonds are attractively priced relative to other classes Source: JP Morgan, Barclays Data as of Jan 31,

9 Investment Process Market Screening and Monitoring Quantitative Market and Portfolio Review Fundamental Research and Valuation Qualitative Market Monitoring News, new placements, financial reports, 3rd party research Internal Rating: - Soveriegn rating model - Corporate credit risk research Portfolio Construction Fair Spread Aggregate market data by rating and duration Valuation Portfolio Construction Guidelines Risk Management Guidelines Execution Short list of Trade Ideas -Fair vs actual spread -Over/under valuation signal 9

10 Investment Process Valuation Example Internal research Internal rating Proprietary valuation score Buy or sell signal Systematic and flexible approach, framework for buy and sell discipline Example actual trades in Metinvest 2015 Eurobonds BUY Valuation score 0.98x Metinvest'15 (clean price) SELL Valuation score 1.11x SELL Valuation score 1.05x BUY Valuation score 0.81x SELL Valuation score 0.86x 90 BUY Valuation score 0.85x 85 May-10 Nov-10 May-11 Nov-11 May-12 Nov-12 May-13 Nov-13 Source: Bloomberg, Citadele AM calculations Data as of Jan 31,

11 Investment Restrictions and Internal Guidelines Standard UCITS restrictions apply Currency risk management guidelines: Focus on hard currency Eurobonds, local currency debt limit - 30% Non-USD risk fully hedged in Eurobonds Country allocation guidelines: Source: Citadele AM. *Other countries include: Slovenia, Azerbaijan, Hungary, Georgia, Bulgaria, Croatia, Estonia Data as of Jan 31,

12 Risk Management Ex-ante within the investment team Credit risk at instrument and aggregate portfolio level based on internal and external credit scores Duration risk on a portfolio level Each transaction authorized for settlement by all investment committee members Ex-post independent monthly report for the company management Return analysis absolute and versus benchmark Risk analysis VAR based on currency and credit risk; Monte Carlo simulations Key risk statistics: Ratios 1 year * 3 years ** 5 years ** inception ** Since Total Return 1.7% 5.1% 18.0% 6.7% Standard Deviation 3.5% 6.6% 10.3% 11.9% Sharpe Ratio Sortino Ratio * - the performance is calculated as the fund share price change compared to its value in the start of the defined period ** - annualized fund performance is calculated, using ACT/365 method Source: Morningstar Data as of Jan 31,

13 Default Rate Fund vs. Market Substantially smaller losses from issuer default than the market overall Source: Citadele AM calculations Data as of Dec 31,

14 Fund Facts Citadele Eastern European Bond Fund USD Citadele Eastern European Bond Fund EUR Top 10 holdings, % Inception date March 2003 October 2003* Currency USD EUR Fund size USD 16.2M EUR 16.9M ISIN LV LV Bloomberg code PAREEUB LR PAREUBA LR Management fee 1.50% Coupon Maturity Weight Slovenia 4.75% May % MOL 6.25% Sep % Gazprom 9.25% Apr % KazMunayGas 9.13% Jul % Alfa Bank 7.75% Apr % Custodian Listing Citadele Bank NASDAQ OMX Riga VTB Bank 6.00% Apr % Zhaikmunai 10.50% Oct % Compliance status UCITS Domicile Latvia Liquidity Daily, T+1 Polyus Gold 5.63% Apr % Credit Bank of Moscow 8.25% Aug % Bank of Georgia 7.75% Jul % *the investment policy changed to a bond-only from a balanced one in September 2011 Source: Citadele AM. Data as of Jan 31,

15 Fund Management Team Andris Kotans, CFA Head of Fund Management 6 years with company 10 years in industry MA Economics Edgars Lao, CFA Portfolio Manager 6 years with company 7 years in industry MBA Elvijs Avenitis Credit Analyst 1 year with company 1 year in industry BBA Economics 15

16 Citadele Asset Management Institutional Relations Veronika Baranova Head of Institutional Relations Direct veronika.baranova@citadele.lv Citadele Eastern European Bond Fund -EUR Citadele Eastern European Bond Fund -USD 16

17 Citadele Asset Management 2A Republikas Square Riga, LV-1010 Latvia T F asset@citadele.lv The information contained in this review was obtained in good faith from sources believed to be reliable. No guarantee, explicit or implicit, is provided with respect to completeness and accuracy of the information. The opinions expressed represent the current opinion of the authors and do not represent the opinion of Citadele Asset Management or any of its affiliates, subsidiaries or representatives. The opinions are subject to change without prior notice. Neither Citadele Asset Management nor any of its affiliates, subsidiaries or representatives accepts the liabilities arising from the possible use of the information contained in this review. This material is provided for informational purposes only and should not be construed as advice to buy, hold or sell a particular security or investment. Any investment you make shall be based solely on your own evaluation of your financial circumstances and investment objectives. Past performance is not a guide to future performance. The opinions expressed are based on Citadele Asset Management s internal forecasts and should not be relied upon as indicating any guarantee of return from an investment in our funds. Citadele Asset Management is a business name of Citadele Asset Management IPAS, registered in Latvia on 11/01/2002, Reg.No Registered Office: Republikas square 2A, Riga, LV-1010, Latvia. Authorised and regulated in Latvia by Financial and Capital Market Commission, license No /