Monthly Review of ABLV Mutual Funds (December, 2015)

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1 Monthly Review of ABLV Mutual Funds (December, 2015) Management company comment The last month of the year 2015 was a big disappointment to almost all asset investors. Contrary to the traditional Santa Claus rally, financial markets demonstrated a strongly negative return. Christmas sales were initiated by the results of the European Central Bank (ECB) meeting, which did not meet the expectations of market participants. The reason is Mario Draghi, the President of the ECB, who sent out a very clear signal during the previous meeting of the ECB in October concerning regulator s intentions to expand the programme of quantitative easing (QE) already in December, which is why November turned out to be relatively calm and new incentives were expected. However, further situation on financial markets developed rapidly and not as many desired. Although the ECB announced several additional measures for the activation of the European economy and eventually the eurozone was stimulated, it was not enough to increase investors' enthusiasm, also because the announced measures were in no way as effective as expected. Disappointment and frustrated hopes significantly changed the mood on markets, which led to the drop in prices of all financial instruments starting with German Bunds and US treasuries and ending with raw material markets. European stock markets were hit the hardest because regulator s policy was the main incentive for them to grow in the first half of the year as Europe s performance on the macro- and microlevel is not as impressive as USA s. Dissatisfaction following the ECB s decision was so strong that European stock indexes lost approx. 10% within a week and a half only. That led to a big wave of sales on raw material markets, which resulted in sales on bond markets of emerging economies and corporate bond markets, etc. The situation distantly reminded of the events of December 2014 when the result appeared to be the same, though a reason of the drop was different. The outcome would be quite unclear if it were not for the Federal Reserve of the USA, which stepped into the breach one more time and instead of bringing negative surprises set minds at rest. Finally, everybody experienced a long-awaited event which was constantly putting pressure on financial markets, i. e. the FRS increased the rate by 0.25 percentage points. As such action was expected, it did not have a special effect. However, the statement Janet Yellen, the Chair of the Board of Governors of the Federal Reserve System, made during the press conference on the results of the meeting was well met by markets as they found confirmation of FRS carefulness towards further decisions on the rate taking into account economic growth and inflation. Such declamation of Janet Yellen slightly calmed down investors and consequently partly restored markets, though it was not enough to win back the losses of the first half of the month. As a result, at the end of December almost all markets demonstrated negative dynamics. The same applied to funds managed by ABLV Asset Management, which showed a yield equal to the market return. As to the year 2015 in general, it was quite hard for investors. On one hand, financial markets were constantly experiencing the pressure caused by possible increase of the rate in the USA. On the other hand, the stimulating monetary policy of other leading countries, such as European ones and Japan, influenced investors mood for good. Such divergence correspondingly affected certain classes of assets. Euro-denominated bonds demonstrated a significantly higher yield compared to US dollar-denominated ones. It was especially evident in High Yield corporate sector where American index dropped by 5% while the European one almost did not change. European and Japanese stock markets, despite high volatility during the whole year and a rapid drop in December, eventually showed more or less appreciable growth (+6.8% and 9%, accordingly). At the same time, S&P500 index almost did not change (-0.73%). The biggest disappointment provided markets of emerging economies (MSCI EM dropped by 17%). The reason behind was a negative influence of FRS policy, ongoing drop in prices of energy resources and metals, political instability in certain countries, as well as slowed economic growth in China and Brazil, etc. In a word, the circumstances appeared to be unfavourable. The only bright spot on the dark background, and probably one of the biggest surprises of the past year, was the Russian Eurobond market, which despite the above-mentioned negative atmosphere not only completely won all losses it experienced in 2014 but also demonstrated a positive yield in two years.

2 Monthly Review of ABLV Mutual Funds (December, 2015) At the beginning of the year 2016, we expect the trends of the second half of the previous year to continue, as the main factors affecting markets remain the same. The situation will mostly depend on macroeconomic performance of Europe and China, which will allow to conclude if the ongoing monetary policy is effective enough. Investors will also pay their attention to quarterly reports of European and American corporations the results of which might set the pace on stock markets in the mid-term. We are awaiting stabile prices on bond markets determined by restored liquidity of the latter. We also believe the market is heavily oversold, especially in corporative bond section of both developed and emerging countries, which is another reason for the anticipated stability. Therefore, current levels are considered attractive from risk-return point of view. Additional information is available at ABLV Bank home page in the section ABLV Mutual Funds. Jevgenijs Gžibovskis ABLV Asset Management, IPAS Deputy Chairman of the Board This comment is intended exclusively for informative purposes and cannot be considered as an investment recommendation or advice.

3 Government Bond Funds ABLV Emerging Markets USD Bond Fund ABLV Emerging Markets EUR Bond Fund Fund Details Fund type Government Bond Fund Government Bond Fund Risk profile 1 moderate (4) moderate (3) ISIN LV LV Inception date April 2007 August 2007 Auditor KPMG Baltics KPMG Baltics Fund manager Jevgenijs Gžibovskis Jevgenijs Gžibovskis Management fee 0.75% (p.a.) 0.75% (p.a.) Fund Characteristics Fund assets USD EUR Fund share value USD EUR Number of fund participants Performance for period 2 : Year % 2.31% Year % 1.83% Year % 0.92% Year % 15.88% Annualized return since inception 4.63% 3.78% Features of financial instruments in the fund's portfolio: Yield (coupon) 6.14% 4.06% Term to maturity (in years) Weighted average rating 3 BB+ BB+ Annualized yield to maturity 5.73% 4.24% 1 The risk profile is expressed by synthetic indicator on a scale from 1 (lower return and usually lower risk) to 7 (higher return and usually higher risk), based on the fund s return volatility indicators 2 The historic performance is no guarantee for the fund s future performance. This material is informative and it cannot be regarded as a proposal or recommendation to purchase or sell investment certificates mentioned herein 3 Weighted average rating of fund securities, to which rating is assigned General information on ABLV mutual funds and management company ABLV Asset Management, IPAS, as well as all additional information can be found on our home page: Public information about the Funds is available on the Exchange Nasdaq Riga:

4 Government Bond Funds Fund Performance ABLV Emerging Markets USD Bond Fund (ISIN: LV ) ABLV Emerging Markets EUR Bond Fund (ISIN: LV ) USD EUR Public information about the Funds is available on the Exchange Nasdaq Riga:

5 Corporate Bond Funds ABLV High Yield CIS USD Bond Fund ABLV High Yield CIS RUB Bond Fund ABLV Global Corporate USD Bond Fund ABLV European Corporate EUR Bond Fund ABLV Emerging Markets Corporate USD Bond Fund Fund Details Fund type Corporate Bond Fund Corporate Bond Fund Corporate Bond Fund Corporate Bond Fund Corporate Bond Fund Risk profile 1 moderate (4) moderate (4) moderate (3) moderate (3) moderate (4) ISIN LV LV LV LV LV Inception date June 2007 January 2012 June 2013 June 2013 September 2015 Auditor KPMG Baltics KPMG Baltics KPMG Baltics KPMG Baltics KPMG Baltics Fund manager Sergejs Gačenko Sergejs Gačenko Sergejs Gačenko Sergejs Gačenko Sergejs Gačenkoo Management fee 1.25% (p.a.) 1.25% (p.a.) 1.00% (p.a.) 1.00% (p.a.) 1.25% (p.a.) Fund Characteristics Fund assets USD RUB USD EUR USD Fund share value USD RUB USD EUR USD Number of fund participants Performance for period 2 : Year % 13.78% -1.58% 1.47% 0.09% Year % % 0.34% 3.30% - Year % 7.00% Year % Annualized return since inception 4.95% 3.95% 0.29% 3.29% - Features of financial instruments in the fund's portfolio: Yield (coupon) 6.54% 10.84% 5.88% 4.90% 6.38% Term to maturity (in years) Weighted average rating 4 BB BB BB+ BB BB Annualized yield to maturity 7.16% 17.57% 6.32% 4.92% 6.31% 1 The risk profile is expressed by synthetic indicator on a scale from 1 (lower return and usually lower risk) to 7 (higher return and usually higher risk), based on the fund s return volatility indicators 2 The historic performance is no guarantee for the fund s future performance. This material is informative and it cannot be regarded as a proposal or recommendation to purchase or sell investment certificates mentioned herein 3 Except ABLV Emerging Markets Corporate USD Bond Fund, for which return is calculated since funds inception date 4 Weighted average rating of fund securities, to which rating is assigned General information on ABLV mutual funds and management company ABLV Asset Management, IPAS, as well as all additional information can be found on our home page: Public information about the Funds is available on the Exchange Nasdaq Riga:

6 Corporate Bond Funds Fund Performance ABLV High Yield CIS USD Bond Fund (ISIN: LV ) ABLV Global Corporate USD Bond Fund (ISIN: LV ) USD USD ABLV High Yield CIS RUB Bond Fund (ISIN: LV ) ABLV European Corporate EUR Bond Fund (ISIN: LV ) RUB EUR Public information about the funds is available on the Exchange Nasdaq Riga:

7 Stock Funds Fund Details ABLV Global USD Stock Index Fund ABLV Global EUR Stock Index Fund ABLV US Industry USD Equity Fund ABLV European Industry EUR Equity Fund Fund type Stock Fund Stock Fund Stock Fund Stock Fund Risk profile 1 moderately aggressive (5) moderately aggressive (5) moderately aggressive (5) moderately aggressive (6) ISIN LV LV LV LV Inception date April 2007 August 2007 November 2013 November 2013 Auditor KPMG Baltics KPMG Baltics KPMG Baltics KPMG Baltics Fund manager Andrejs Piļka Andrejs Piļka Oļegs Rusnaks Oļegs Rusnaks Management fee 1.50% (p.a.) 1.50% (p.a.) 1.50% (p.a.) 1.50% (p.a.) Fund Characteristics Fund assets USD EUR USD EUR Fund share value USD 9.62 EUR USD EUR Number of fund participants Performance for period 2 : Year % 0.86% -1.03% 5.21% Year % 3.84% 6.95% 2.09% Year % 3.26% - - Year % 11.67% - - Annualized return since inception 0.90% -0.46% 4.27% 3.69% 1 The risk profile is expressed by synthetic indicator on a scale from 1 (lower return and usually lower risk) to 7 (higher return and usually higher risk), based on the fund s return volatility indicators 2 The historic performance is no guarantee for the fund s future performance. This material is informative and it cannot be regarded as a proposal or recommendation to purchase or sell investment certificates mentioned herein General information on ABLV mutual funds and management company ABLV Asset Management, IPAS, as well as all additional information can be found on our home page: Public information about the funds is available on the Exchange Nasdaq Riga:

8 Stock Funds Fund Performance ABLV Global USD Stock Index Fund (ISIN: LV ) ABLV US Industry USD Equity Fund (ISIN: LV ) USD USD ABLV Global EUR Stock Index Fund (ISIN: LV ) ABLV European Industry EUR Equity Fund (ISIN: LV ) EUR 9.62 EUR Public information about the funds is available on the Exchange Nasdaq Riga:

9 Total Return Fund Fund Details Fund type ABLV Multi-Asset Total Return USD Fund Total Return Fund Risk profile 1 balanced (4) ISIN LV Inception date February 2015 Auditor KPMG Baltics Fund manager Andrejs Piļka Management fee Fund Characteristics Fund assets Fund share value 1.50% (p.a.) USD Number of fund participants 25 Performance for period 2 : Year ,07% Annualized return since inception - 1 The risk profile is expressed by synthetic indicator on a scale from 1 (lower return and usually lower risk) to 7 (higher return and usually higher risk), based on the fund s return volatility indicators 2 The historic performance is no guarantee for the fund s future performance. This material is informative and it cannot be regarded as a proposal or recommendation to purchase or sell investment certificates mentioned herein 3 Return is calculated since funds inception date 9,29 USD General information on ABLV mutual funds and management company ABLV Asset Management, IPAS, as well as all additional information can be found on our home page: Public information about the funds is available on the Exchange Nasdaq Riga: