The document provides a summary of major risk-related events that occurred throughout 2012, including increases and decreases in corporate hedging positions across different industries and asset classes in response to market volatility. It also lists the top risk events by month that impacted markets and reviews portfolio performance based on factors like industry, region, and investment style. The outlook for risk in 2013 from corporate executives is also examined.

1. risk
2012 Review
2013 outlook
January 2013

2. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 2
Contents 2012 calendar
2012 calendar money funds’ hold- MONTH ACTIONS
Key risk-related ings of euro-area
and Japanese banks U.K. pension fund gilt purchases hit record.
events that shaped
the year. page 2 recovered in 2012. U.S. Money funds cut French bank holdings by 97 percent since 2010.
page 8 European debt agencies in Sweden and Norway reap gains from interest
JAN
Corporate rate swaps.
Hedging cross asset ING begins hedging to reduce interest rate and currency effect on Basel III
disclosures correlations credit valuation adjustment charges.
A breakdown of An interactive guide
derivative posi- showing how gold Restaurant chain McDonalds said it may benefit as suppliers ramp up op-
tions held by major and oil correlated tions hedging of grain used for rearing chickens.
companies in 2012. with equities during Ford Motor Co increases bond investments to counteract a $3.4 billion
page 3 the year. increase in pension liabilities.
FEB
page 9 Deutsche Bank forced to take 1 billion euro capital charge on future
volatility litigation risk.
watch Corporate Axa, ING increase estimated liabilities of U.S. variable annuity portfolios after
How company outlook policyholders held on to contracts.
hedging strategies Executives look at
were affected by the prospects for risk Coca-Cola Co. opts to leave foreign cash in high-yielding emerging market
in 2013. page 10 deposits and hedge FX risk.
market volatility dur-
ing 2012. page 5 MAR Italy paid Morgan Stanley $3.4 bnillion to unwind a losing derivative bet.
POrtfolio Aviva, Delta Lloyd add out-of-the money put options and swaptions to hedge tail risk.
Sovereign cds factor
BMW adds 25.7 billion euros of currency hedges, as it ramps up Chinese hedges.
performance rankings
World heat-map How investing style, Increasing interest rates and low guarantees leave Chinese insurers facing
showing how industry and country billions of renminbi in policyholder redemptions.
government credit factors affected BT decides to use a June 2011 discount rate over planned December rate for
swaps improved in returns in 2012. pension fund, reducing its deficit by billions of pounds.
a rollercoaster year. page 12 APR
Google Inc.’s foreign-exchange hedging costs rose above $100 million for the
page 7 second quarter in a row for the first time.
KPMG casts doubt on Vestia, the Dutch housing associations’ derivatives
U.S. MONEY
accounting.
FUNDS
The top ten U.S. MetLife, Prudential add equity options as falling volatility reduces hedging
costs.
Swiss Re, Scor among major European reinsurers that increased holdings
Bloomberg Brief Risk MAY of financial debt, just before risk levels rose sharply amid euro-area breakup
concerns.
Newsletter Ted Merz Allianz updates its internal risk model with less conservative assumptions,
Executive Editor tmerz@bloomberg.net boosting capital while Southern European bond prices fell.
212-617-2309
Taiwan life insurer hedigng costs rose even as new regulations create
Risk Editor Nick Dunbar reserves against foreign currency fluctuations.
ndunbar1@bloomberg.net JUN British defined benefit pensions deficits increase, after being the worst-
+44-20-3216-4818
funded in Europe.
Reporter Radi Khasawneh Three large U.K. banks put $17.2 billion of their pension fund assets into cash.
rkhasawneh1@bloomberg.net China’s four largest banks turn to international firms for short-term borrowing.
+44-20-7673-2763
JUL Delta Lloyd and ING reassess interest-rate hedging strategies after Dutch
Technical Alberto Fuertes central bank changes discount rate calculation.
Editor afuertes@bloomberg.net
JPMorgan, UBS, Credit Suisse increase CDS hedges on Italian sovereign.
+44-20-3525-8364
AUG Swiss Life sold $8.1 billion of bonds amid concern that euro-Swiss franc
Newsletter Nick Ferris hedges wouldn’t work in the event of a euro break-up.
Business Manager nferris2@bloomberg.net
Italian bank Monte Dei Paschi made a bet on long-dated government bonds,
212-617-6975
before short-dated ECB bond buying caused a rally in the short-term debt.
SEP
Advertising bbrief@bloomberg.net Deutsche Bank’s plan to boost capital by using lower internal risk weightings
212-617-6975 questioned by analysts.
Reprints & Lori Husted
JPMorgan’s credit exposure to Southern Europe almost doubles to $11.7 billion.
OCT
Permissions lori.husted@theygsgroup.com Verizon pays to achieve $7.5 billion pension transfer.
717-505-9701
EADS increased currency hedges by $11.3 billion, betting that the euro would
To subscribe via the Bloomberg Terminal type BRIEF
strengthen.
NOv
<GO> or on the web at www.bloombergbriefs.com. Allianz and Generali reduced holding of Italian government bonds by a
combined 4.9 billion euros.
© 2013 Bloomberg LP. All rights reserved.
Canadian Banks RBC and CIBC reduced VaR even as trading revenues
This newsletter and its contents may not be forwarded increased.
DEC
or redistributed without the prior consent of Bloom- MetLife says low-rate hedges will add 45 percent to income for 2012, as ti
berg. Please contact our reprints and permissions adds protection against higher rates.
group listed above for more information.
1 2 3 4 5 6 7 8 9 10 11 12

3. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 3
Corporate hedging disclosures
Mouse over the rows for asset classes and industry for corporate disclosures
The amount of hedging done by companies is an important indicator of outlook by institutions in specific markets. Throughout the year,
the Risk Brief compiles hedging data from filings. In the table below, selected disclosures in different markets are provided for 2012, for
companies whose quarterly filings permit comparisons. Numbers are for notional amount of hedges reported at the beginning or during
the quarter indicated, subject to filing date.
Neivanda Aequo Inumquo Dit Voluptis Modin
HEDGING
q1 q2 q3 q4
INSTRUMENTS
ENERGY
Oil
Oil producers (thousand barrels) 93,581 169,758 155,499 182,090
Cruise Companies (thousand
22,704 29,377 36,590 40,513
barrels)
Airlines (thousand barrels) 113,957 132,626 184,418 150,102
Natural Gas
Natural gas producers
3,530 3,252 2,906 2,398
(trillions of btu)
currencies
EUR USD
Aeronautic European Companies
91,385 97,535 102,075 104,835
hedging $ revenues ($, millions)
U.S. companies hedging euro
3,876.79 4,828.39 4,981.49 6,013.16
revenues ($, millions)
GBP-USD
U.S. companies hedging sterling
2,251.01 2,767.33 2,722.27 3,128.25
revenues ($, millions)
INR-USD
Indian Technology Companies
3,821.09 5,454.01 5,278.93 4,997.85
hedging $ revenues ($, millions)
BRL-USD
Brazilian companies hedging
dollar-denominated costs ($, 787.65 1,122.03 459.10 461.95
millions)
MXN-USD
U.S. companies hedging peso-
79.81 64.44 80.70 64.50
denominated costs ($, millions)
CAD-USD
U.S. companies hedging canadian-
296.60 322.70 249.90 360.40
dollar revenues ($, million)
JPY-USD
U.S. companies hedging yen-
27.50 14.10 34.10 61.20
denomimated revenues ($, millions)
VOLATILITY
Variance Swaps
U.S. insurers hedging variable
18,402.00 19,108.68 19,834.28 20,058.68
annuities ($, millions)
METALS
Silver
Companies using silver in their
203,058 144,250 99,870 56,170
products (troy ounces)
Nickel
Companies using Nickel in their
1,395,177 1,581,530 1,454,782
products (pounds)
Platinum
Companies using platinum in their
82,117 72,774 74,410 67,799
products (troy ounces)
Copper
Companies using copper in their
47.82 39.62 49.64 42.75
products (million pounds)
Source: Company notes
1 2 3 4 5 6 7 8 9 10 11 12

4. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 4
corporate hedging disclosures ....
continued from previous page
Click on the rows for asset classes and industry for individual corporate disclosures
HEDGING
q1 q2 q3 q4
INSTRUMENTS
Companies using aluminum in their
25,833.23 22,879.91 19,869.75 14,294.96
products (metric tons)
Zinc
Companies using zinc in their
products (metric tons)
AGRICULTURAL
Coffee
Companies that use coffee in their
30.54 111.42 107.88 72.35
products (million pounds)
Soybean meal
Companies using Soybean Meal in
24,600 81,300 53,800
their products (tons)
Soybean oil
Companies using Soybean Oil in
8.00 19.00 14.00 30.37
their products ($, million)
Corn
Companies using corn in their
26.7 18.2 24 36.9
products (million bushels)
Sugar
Companies hedging their sugar
1.39 1.70 3.25 3.88
sales (million tons)
Meat
Lean hog
Companies that use lean hogs in
704 573 685 347
their products (million pounds)
INTEREST RATES
Insurer Interest Rate Derivative
315.74 311.946 328.979 341.586
Hedges ($ billions)
Regional US Bank Freestanding
32.035 7.774 7.767 7.428
mortgage hedges ($, billions)
REIT Interest Rate Hedging Against
80.75 103.94 109.985 115.7
Rising Rates ($, billions)
U.S. Government Agency (Receive
492.94 520.478 574.768 616.165
Fixed) ($, billions)
Government Agency (Pay Fixed)
466.785 429.2 400.2 372.984
($, billions)
EQUITIES
Insurer equity derivative notionals
60.015 82.55 84.26 97.354
($, billions)
Euro area
U.S. bank exposure to Portugal,
Italy, Ireland, Spain, Greece (net) 44.113 38.966 30.774 40.834
($, billions)
Source: Company notes
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5. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 5
VOLATILITY WATCH Click on dotted lines for interactive captions
Rebound In Natural Gas Prompts
Decrease In Hedges
After natural gas prices halved in 2011, option traders
expected further declines in prices as negative skew
reached a high for for 2012 on Jan. 9. Producers of the
commodity also began 2012 with substantial hedge
positions in place, with Range Resources reporting a 78
percent increase in hedges against price declines in the
last quarter of 2011, while Dynegy Inc. said on May 10
that it expected ‘negative settlements’ after selling natural
gas put options in 2011.
By the second half of the year, as prices rebounded
sharply, gas producers cut back on hedging. Of five
producers whose filings were analyzed by Bloomberg,
notional hedges decreased by 32 percent between Janu-
ary and September. The reversal was also reflected by
option traders, with skew turning positive in November.
Weakening of Yen Leads
to Hedge Increase
Central bank intervention amid political pressure for a
weaker yen prompted U.S. companies that export to
Japan to increase their hedges during 2012. Since the
yen strengthened to a record of 75 per dollar in 2011, a
postwar high, the Bank of Japan and government have
enacted 44 trillion yen in asset purchases and inter-
vention. Bloomberg surveyed three U.S. companies
that export to Japan - Cadence Design Systems, En-
ersys and Teledyne. Between them, these companies
increased their notional amount of dollar-yen hedges
by 122 percent during 2012, according to quarterly
filings. Option traders also became more bearish on
the yen, with skew increasing to minus 1.3 percentage
points in December.
Oil Hedgers Fight Fast-Changing
Market Airlines reported the largest amount
of hedges at the end of June, as
Whipsawing prices proved a challenge for buyers and
implied volatility reached a record
sellers of WTI crude oil in 2012, as companies sought high over 2012.
to manage tail risk while avoiding getting caught with
money-losing hedges. That was reflected in the price of
short-term WTI options, where implied volatility briefly
doubled during the middle of the year. At the start of 2012,
moves by oil producers such as Hess Inc. to increase
hedges against falling prices seemed to backfire as WTI
prices rose. By the end of the year, oil was showing a net
decline, and four oil-producing companies surveyed by
Bloomberg had increased their notional oil hedges by 100
percent, according to filings. U.S. airlines also increased
hedges at the start of the year, only to decrease them
again once the decline in prices became apparent.
1 2 3 4 5 6 7 8 9 10 11 12

6. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 6
VOLATILITY WATCH ...continued from previous page
European Defence Companies Add
Dollar Hedges
The three largest defence contractors in the euro area,
European Aeronautic, Defence & Space Co., Safran
SA and MTU Aero Engines Holding AG increased
their use of currency hedges to $104.8 billion from
$91.4 billion at the end of the year, taking advantage of
low exchange rates and volatility, Bloomberg analysis
of company filings shows. EADS bought $27 billion
of derivatives to hedge dollar revenues in the first
nine months of the year, more than the $15.7 billion
of hedges that matured, according to its third quarter
filing. The company has taken advantage of prevail-
ing market rates to reduce the average euro/dollar
exchange rate to $1.29 in the third quarter. The euro
declined 5.3 percent in 2012 against the dollar, accord-
ing to 100-day moving average prices.
Equity Rally, Volatility Decline Hurts
Value of Insurer Equity Derivatives
Equity hedges used by U.S. insurers which sell vari-
able annuity policies lost value in the second half of
the year, filings showed. Prudential Financial Inc. and
MetLife Inc. reported derivative hedge losses of $1.09
billion and $1.45 billion respectively in the third quarter,
led by declines in the market value of equity deriva-
tives used, according to third quarter filings. The insur-
ers’ hedges were dealt a double blow from an increase
in equity prices and a reduction in volatility during the
third quarter. Equity historical volatility, as measured
by the Chicago Board Options Exchange VIX index,
declined from 21.41 at the beginning of the year to a
three-year low of 13.45 percent on Aug. 17, before end-
ing the year at 14.56 percent.
REITs Add Hedges on Interest Rate
Declines
Mortgage REITs reacted to declining interest rates and
volatility by adding new hedges. The companies, which
finance their variable-rate mortgage assets through
short-term debt and repurchase agreements, use de-
rivatives that benefit from increases in interest rates.
Two Harbors Investment Corp. more than doubled
its use of interest rate swaps in the year to Sept. 30,
to $12.1 billion from $5.8 billion. The company also
bought $5.2 billion of payer swaptions, with maturities
over four years, as a way to protect against a sudden
increase in rates. The two largest REITs, Annaly Capi-
tal Management Inc. and American Capital Agency
Corp. also increased their use of swaps.
1 2 3 4 5 6 7 8 9 10 11 12

7. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 7
SOVEREIGN CDS PERFORMANCE click on the noted countries for interactive features
Government Credit Swaps Improved in Rollercoaster Year
Sovereign five-year credit default swaps posted overall improvement in 2012, with only four countries worsening in the year. This
heatmap shows percentage change in price grouped into color bands for each country. The worst performer was Argentina, as court
wrangles with government bond holders weighed on its performance. The U.S. also lagged on fiscal and debt issues. European coun-
tries, led by Austria, improved on the resolution of bailout concerns, while Middle Eastern governments lagged on political risk concerns.
Annual Percentage
Change in CDS Price
Ten Best Performing Sovereigns in 2012 Ten Worst Performing Sovereigns in 2012
CDS Credit Rating Net CDS Notional CDS Credit Rating Net CDS Notional
5Y YoY % USD m YoY Chg 5Y YoY % USD m YoY Chg
Sovereign Issuer: Best Performing Sovereign Issuer: Worst Performing
Austria 45.85 -77.15 Aaa/AA+/AAA 4,613 -22% U.S. 40.67 -27.72 Aaa/AA+/AAA 3,496 40%
Denmark 35.33 -76.65 Aaa/AAA/AAA 1,985 -33% Spain 281.37 -27.48 A3/BBB-/BBB 12,671 -20%
Bulgaria 103.38 -76.40 Baa2/BBB/BBB- 583 -20% Ukraine 611.65 -26.64 Caa1/B/B 853 -6%
Sweden 21.18 -75.23 Aaa/AAA/AAA 553 -5% Egypt 540.00 -18.60 B3/B-/B+ 481 -38%
Belgium 85.18 -74.09 Aaa/AA/AA 4,034 -28% Morocco 225.00 -13.30 Ba2/BBB-/BBB-
Lithuania 102.42 -71.70 Baa1/BBB/BBB 479 -24% Lebanon 447.93 -11.01 B1/B/B 506 8%
Poland 78.81 -71.65 A2/A-/A- 1,545 -14% Costa Rica 310.38 1.00 Ba1/BB+/BB+
Ireland 224.44 -70.26 A3/BBB+/BBB+ 17,047 -3% Cyprus 1020.75 2.62 B1/CCC+/BB- 307
Latvia 117.73 -68.72 Baa3/BBB/BBB 524 -10% Tunisia 360.00 21.87 Baa3/BB/BB+ 266 -7%
Slovakia 102.71 -67.36 Aa2/A/A+ 826 8% Argentina 1427.49 56.53 Caa1/B-/CC 1,495 -34%
1 2 3 4 5 6 7 8 9 10 11 12

8. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 8
u.s. money fund bank holdings click on tabs and buttons for interactive features
Ten Largest U.S. Money Funds Increased Euro-Area, Japanese Bank Holdings in 2012
The ten largest U.S. money funds added holdings of European banks over 2012, according to a survey of portfolio updates by Bloom-
berg: Risk. The funds added French banks over the period reversing a flight from the banks in the year before, data showed.
Total French
Banks
120,000
Total Dutch
Banks
100,000
Total Swiss
Banks
80,000
Total Swedish
Banks
$ millions
60,000
Total German
Banks
40,000
Total Japanese
Banks
20,000
Total British
Banks
0
Total U.S. Banks
Eurozone
Aggregated Holdings of 10 Largest U.S. Money Funds ($m)
1 Month 1 Month % 1 Year 1 Year %
NOV. 30 OCT. 31 1 Year Ago
Change Change Change Change
Total French Banks 33,256 31,092 7,573 2,165 7% 25,683 339%
Total Dutch Banks 16,255 15,626 28,793 630 4% -12,538 -44%
Total Swiss Banks 33,825 39,071 36,042 -5,246 -13% -2,217 -6%
Total Swedish Banks 43,215 34,015 40,732 9,201 27% 2,483 6%
Total German Banks 23,659 19,149 19,707 4,510 24% 3,952 20%
Total Canadian Banks 64,844 62,593 61,682 2,251 4% 3,161 5%
Total Japanese Banks 80,328 75,140 51,270 5,188 7% 29,059 57%
Total British Banks 40,588 42,170 52,481 -1,582 -4% -11,892 -23%
Total American Banks 56,334 58,096 37,346 -1,761 -3% 18,989 51%
Total Australian Banks 47,502 39,707 54,764 7,795 20% -7,262 -13%
Source: Bloomberg
MOUSE OVER THE ROWS FOR INTERACTIVE FEATURE
Follow Nicholas Dunbar on Twitter for regular updates and additional insights @nicholasdunbar
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9. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 9
Cross-Asset Correlations click on tabs and buttons for interactive features
Gold, Oil Showed Wide Range of Correlations With Equities in 2012
Three-month rolling correlations between different asset classes varied significantly throughout 2012, with correlation between gold and
the S&P 500 index crossing into negative territory in the middle of the year. Correlation between oil and equities stayed about 50 percent
throughout the year.
EUR-USD /
Euro Stoxx 50
1
EUR-USD /
S&P 500
0.8
EUR-USD /
3 Month Rolling Correlation
Gold
0.6
EUR-USD /
Oil
0.4
Euro Stoxx 50 /
S&P 500
0.2
Euro Stoxx 50 /
Gold
0
S&P 500 /
Gold
-0.2
S&P 500 /
Oil
Gold / Oil
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10. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 10
Corporate risk outlook Since November 2012, companies have been talking to investors about their risk management
outlook and strategies for 2013. The Risk Brief has compiled a selection of comments.
“Every day the business press is filled with a litany of risks “The first de-risking really had no negative
from political instability and economic volatility to rapid chang- losses and to be honest, we continued for
es in market dynamics. Both the opportunities and the risks we a long period. We have a little bit higher
face are truly unprecedented.” losses right now, and continue to perform
– Donald Blair, CFO, Nike Inc., Dec. 20 quite well. I’m just making a statement
that, obviously, I cannot exclude that if we
“I think our brands were very aggressive this year to get the sell one of these assets that we might be
fuel cost down and took some yield risk to do it, and I’m sure willing to take a larger loss at some given
that’s baked into their forecast. We firmly supported those point in time. Our guidance, therefore, is
decisions and there is some additional risk to it on the yield unchanged” .
side, but we believe that profitability-wise it’s the right decision. – Stefan Krause, CFO, Deutsche Bank AG, Dec. 13
To go beyond - a lot of these discussions are longer than one
year term, and so I believe that we will see significant fuel sav- “We intend to accelerate our shift away from capital-intensive
ings in 2014 as well, but whether it’ll reach this kind of level or products to improve the risk profile and free cash flow genera-
not, I don’t know.” tion of the company. For example, our U.S. variable annuity
– Miky Arison, CEO, Carnival Corp, Dec. 20 sales target for the next year is approximately 40 percent
below the level of sales we anticipate in 2012. Over time the
“My perspective is there’s a great opportunity for us in the resilience of our earnings stream and our continuing actions to
mortgage business. And as we get more comfortable with it reduce tail risk should improve the valuation of MetLife shares.”
ourselves and make sure we understand the various levers and – Steve Kandarian, CEO, MetLife Inc., Dec. 13
all the risks, you should look for it to become a more significant
contributor going forward” . “We have been willing to take a loss where
– Mark Graf, CFO, Discover Financial Services, Dec. 20 the impact on regulatory capital is offset
or sufficiently mitigated by a reduction in
“Today, the reality is that the global mar- risk-weighted assets. It may also make
ketplace is transitioning to a new normal economic sense to absorb a loss on a sale
environment. As market operators, we if we could significantly reduce the tail risk
have a firsthand view of this new normal. in a portfolio. As it relates to mortgages in
And for different participants, it means today’s market we don’t believe we could
different things. Whether it means reduced execute a sizeable sale without a signifi-
capital levels or risk appetite or a shift in cant negative impact on our regulatory
the balance of power of liquidity suppli- capital ratios. In a better environment, we
ers or significant regulatory and operation may in fact have an opportunity to acceler-
changes facing businesses, it’s clearly a ate mortgage sales.”
– John Gerspach, CFO, Citigroup Inc., Dec. 5
new normal.”
– Duncan Niederauer, CEO NYSE Euronext, Dec. 20
“As the regulators are finalizing the rules for the industry, one of
“I think as you see some stability with the U.S. political and our greatest opportunities is to continue to differentiate ourselves
deficit situation, some stability in Europe, the systemic risk off from the larger players, who are more complex and whose
the table, you’ll start to see eventually dollars flow into equity businesses rely on higher risk activities. We can also compete
securities versus fixed income securities. And then we’ve seen better than smaller banks in our markets, with a broader set of
four years of everything going into fixed income and there will products aimed at serving traditional banking customers.”
– Kevin Kabat, CEO, Fifth Third Bancorp, Dec. 5
be a natural transition. When that happens you’ll see people
start to get rewarded for picking stocks again and willing to “We’ve seen an enormous amount of de-
take risk and you’ll just see flows into the equity market and risking occur both at the financial institution
volumes will come back” . level, as well as now at the sovereign level.
– Richard Handler, CEO, Jefferies Group Inc. , Dec 18
And hopefully, eventually we’ll see some
de-risking here in the United States and
“Looking forward to 2013, we have modest fuel hedging protec- that’s core as well. However, with the risk-
tion in place and that space in Brent crude and that primarily off mentality in place, investors are basi-
provides catastrophic protection in a rising fuel environment. cally sitting on the side lines. We’re seeing
Beyond the first quarter, we expect to pay market prices for the an enormous amount of cash being held by
rest of the year as we’re no longer impacted from the locked-in corporations, institutions, and a lot of dif-
losses from our legacy hedge position from 2008. We’re very ferent players who normally would put their
happy to have that behind us.” cash to work in the investment lifecycle.”
– Tammy Romo, CFO, Southwest Airlines Co., Dec. 14
– Gerald Hassell, CEO, Bank of New York Mellon Corp, Dec. 5
continued on next page
1 2 3 4 5 6 7 8 9 10 11 12

11. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 11
CORPORATE OUTLOOK...
continued from previous page
“While we don’t think we are out of the at the end of the day. It’s really just a function of trying to pro-
woods in Europe, contagion risk has been tect the cash flow to have our development plan going ahead.
reduced, major downside risk has been So we’re in a great position in terms of hedging, same thing on
reduced by some of the liquidity efforts the liquid side of the equation as well. You’ll continue to see us
of central banks, and prices have dislo- actively hedging going forward.”
cated to present better risk rewards. So, – Alan Farquharson, Senior VP of Reservoir Engineering & Economics,
we feel very, very good about the bottom- Range Resources, Dec. 4
up opportunity set. And 2013, there are
some good things going on and there are “We think over time FX flows and credit flow – all of that stuff
some challenges. We do have more of our globally is going to increase, it’s very good underlying funda-
assets invested in the U.S. than what’s tra- mentals. You’re going to get some volatility, but we actually
ditional. The U.S. relative to the rest of the view it as a really good opportunity to consolidate and build
world has more stability. You know where market share, and we have a lot of things going for us that oth-
the central bank’s going to be because ers don’t, and it’s why you see some people reacting in the way
they told you. You know where economic growth is right now, they are, because it’s just – it’s a competitive world out there.”-
and it can vary, but you have a sense of where it is” . – Douglas Braunstein, CFO, JPMorgan Chase & Co., Dec. 4
– Daniel Och, CEO, Och-Ziff Capital Management, Dec. 5
“Even in a slow growth world, we have
“If you look at just with where our flows more investment opportunities than we
are in ETFs and that’s a great public ba- can possibly fund. And although our long-
rometer that everybody should be tracking term growth and strategic plan remain
every day, we are seeing more re-risking sound, this elongated period of volatile
than we’ve had in the entire year. There and uncertain conditions challenges us to
are more flows going into equities in all be even tougher prioritizers and portfo-
areas of equity that we’re seeing in fixed lio managers and causes a reduction in
income. So you’re beginning to see an resources and investments both in terms
unlocking of risk. People are taking on of CapEx and expenses to support these
more risk” . opportunities. Therefore, we are balancing
– Larry Fink, CEO Blackrock Inc., Dec. 5 our plans to expand into new markets and technologies that
are less risky and more near-term in their earnings delivery,
“We’re always going to have in the back of especially those that are in high ROC businesses.”
our minds that we’re in a commodity busi- – Andrew Liveris, CEO, The Dow Chemical Co., Dec. 3
ness in a world with risk and we will be
prepared to adjust - if we have for periods “Insurance companies do a significant amount of underwrit-
of time to deal with those risks as we did ing around the coast for hurricane exposure. You’re interested
in 2008 and 2009, to preserve our liquidity, in concentration of risk. You’re interested in deductibles. And
preserve our assets for what we are confi- what’s really changed now is those same strict coastal under-
dent will be a long-term positive future”
. writing requirements are now in states that are thousands of
– Richard Adkerson, Co-Chairman, Freeport-Mc- miles away from any coast like Oklahoma, Missouri, Minnesota
Moran Copper & Gold Inc., Dec. 5 because you really are then exposed through either hail, tor-
nado or significant windstorms in those states that are almost
“We’re active hedgers. We’ve always been active hedgers. As as significant as a hurricane. So we’ve taken those underwrit-
you look into next year, we have almost 500 Mmcf a day of ing requirements and really moved them through the country
gas already hedged at a price of about $4.18. That’s very sig- with a few exceptions” .
nificant. It’s not that we are trying to project commodity prices – Jeff Dailey, CEO Farmers Group, Zurich Insurance Group AG, Nov. 30
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12. 01.04.13 www.bloombergbriefs.com Bloomberg Brief | Risk 12
Portfolio factor rankings
Style, Industry, Country Are Important Differentiators of Portfolio Returns
Investment managers assess performance and risk by looking at specific factors that drive returns. Bloomberg’s portfolio risk modelling
team analyzes a global portfolio every week for different factors, PORT <GO> and a selection of rankings for different categories are
presented in the tables below. For example, a country factor tracks the additional return over the global market average for stocks within
a given country.
Top 3/Bottom 3 Yield Curve Factors Top 5/Bottom 5 Risk-Adjusted Return Ranking by Sharpe Ratio
name type cum. change Sharpe name type cum. change Sharpe
JP 5 yr govt Yield -15.80 1.32 Value style 5.82 5.20
EU 5 yr govt Yield -44.60 0.71 Real Estate industry 12.19 4.10
AU 5 yr govt Yield -48.00 0.44 Diversified Financials industry 7.32 2.01
US 10 yr Infl breakeven yield Yield 49.87 -1.18 US 5 yr swap spread Yield -28.50 1.95
AU 10 yr Infl breakeven yield Yield 21.30 -0.47 Pharma Biotech & Life Sciences industry 10.67 1.85
CA 5 yr govt Yield 13.10 -0.24 Jamaican Dollar currency -6.72 -1.97
Frontier Europe country -16.14 -2.18
Top/Bottom Vol Factors Egyptian Pound currency -2.45 -2.35
name type cum. change Sharpe Pakistan Rupee currency -8.27 -3.26
VIX Price 2.79 0.03 Argentine Peso currency -13.23 -10.10
EURUSD 3m implied vol Price -58.80 -1.57
Top 3/Bottom 3 Country Factors
name type cum. change Sharpe
Greece country 23.89 0.78 Top 5/Bottom 5 Spread Factors
Thailand country 18.38 1.77 name type cum. change Sharpe
Turkey country 17.47 1.34 Muni US Investment Grade Yield -162.89 1.01
Chile country -12.10 -1.46 USD Cross-Over credits Yield -231.69 1.32
Korea country -14.69 -1.61 USD High Yield Yield -232.32 1.08
Frontier Europe country -16.14 -2.18 Sov Western Europe Yield -247.83 1.51
Europe Cross-Over Yield -312.85 1.16
Top 3/Bottom 3 Style Factors
AU 10Y-2Y spread Yield 22.85 -0.51
name type cum. change Sharpe
CA 5 yr swap spread Yield 15.75 -0.89
Value style 5.82 5.20
JP 5 yr swap spread Yield -4.45 0.51
Momentum style 1.62 0.48
UK 10Y-2Y spread Yield -12.18 0.22
Profitability style 1.52 1.43
US 10Y-2Y spread Yield -12.58 0.21
Earnings Variability style -0.46 -0.44
Dividend Yield style -0.54 -0.54
Growth style -0.86 -0.91
Top/Bottom Commod Factors
name type cum. change Sharpe Top 3/Bottom 3 Industry Factors
Wheat Price 26.00 0.84 name type cum. change Sharpe
Nymex Oil WTI Price -8.03 -0.37 Real Estate industry 12.19 4.10
Pharma Biotech & Life Sciences industry 10.67 1.85
Diversified Financials industry 7.32 2.01
Weekly Returns For Best and Worst Portfolio Factors, 2012
Telecommunication Services industry -8.73 -1.56
20
Value Growth Real Estate Utilities industry -10.01 -1.59
Energy Greece Frontier Europe Energy industry -10.91 -1.66
15 Polish Zloty Argentine Peso Linear (Real Estate)
10
Factor Return
5
Top 3/Bottom 3 Currency Factors
name type cum. change Sharpe
0
Polish Zloty currency 11.28 0.78
-5 Chilean Peso currency 10.01 1.16
Hungarian Forint currency 9.60 0.58
-10 Brazilian Real currency -10.51 -1.12
28/12/2011 28/02/2012 28/04/2012 28/06/2012 28/08/2012 28/10/2012 Sri Lankan Rupee currency -10.86 -1.05
Source: Bloomberg Argentine Peso currency -13.23 -10.10
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