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Applied Quantitative Strategy

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Volatility-Based Allocation (VBA)


Quantitative Research Team: Wesley R. Gray, PhD wes@empiritrage.com Tao Wang tao@empiritrage.com Shenglan Zhang shenglan@empiritrage.com Carl Kanner carl@empiritrage.com

Summary Diversification is an effective risk-management tool, but it does not do enough for the investor that is intensely afraid of large drawdowns. We propose volatility-based allocation as an additional tool. Volatility-Based Allocation (VBA) is a two-signal model that is simple-to-implement, robust, and historically generates a favorable risk/reward return profile. 1. The first indicator in VBA is the volatility regime signal, which simply identifies Risk-On and Risk-Off market regimes. 2. The second indicator in VBA is the long-term moving average signal, which invests when the current price is above the 12-month MA, and invests in the risk-free rate otherwise. Over the March 1, 1986 to August 31, 2012 period, VBA generates a CAGR of 9.76% and a maximum drawdown of 9.64% when applied to our 5 core assets classes: domestic equity, developed equity, emerging equity, real estate, and long-term government bonds. Our volatility regime indicator outperforms the long-term moving average rule as a stand-alone risk management tool. VBA (which combines the volatility regime indicator and the long-term moving average rule) dominates the stand-alone long-term moving average.

PLEASE SEE THE DISLAIMER AND DISCLOSURES AT THE END OF THIS REPORT. The information set forth herein has been obtained or derived from sources believed by Empiritrage, LLC (Empiritrage) to be reliable. Empiritrage does not make any representation or warranty, express or implied, as to the informations accuracy or completeness, nor does Empiritrage recommend that the attached information serve as the basis of any investment decision. This document has been provided to you solely for information purposes and does not constitute an offer or solicitation of an offer, or any advice or recommendation, to purchase any securities or other financial instruments, and may not be construed as such. This document is subject to further review and revision.

T: +1.773.230.4727 | F: +1.888.517.5529 | 3830 Kelley Ave. Cleveland, OH 44114 | info@empiritrage.com

Volatility Regime: Why does it matter?


As overall market volatility increases, risky assets tend to move in the same direction (correlations increase). During Risk Off periods, volatility increases, equities market tend to fall, while safe assets increase in value. Increased correlations between risky assets keep diversification benefits to a minimum. During Risk On periods, volatility decays, equity markets rise, and safe assets decrease in value. Correlations between risky assets decrease, which keep diversification benefits at a maximum. Diversification benefits are lower when correlations are high Diversification provides limited risk management because risky asset correlations have increased over time. A good risk management system needs to predict risk on and risk off regimesnave diversification does not work! Constructing the Volatility Regime Indicator: 1. Short term MA of VIX > Long term MA of VIX -----------------------> Risk off 2. Short term MA of VIX < Long term MA of VIX -----------------------> Risk on Underlying Alpha Driver: Risk asset markets react to spikes in VIX, but not enough conservative bias http://en.wikipedia.org/wiki/Conservatism_(belief_revision)

1 December 2012

2011 Empiritrage, LLC. All Rights Reserved.

VBA System
VBA (Volatility-Based Allocation) Step1: Volatility Regime Step2: MA Rule

VBA Details
Step1: Volatility Regime 10-Day VIX MA > 30-Day VIX MA
No Yes

Risk-On Step 2: MA Rule S&P 500 Price > 12m MA


Yes No

Risk-Off

S&P 500
3 1 December 2012

Risk-Free
Source: Empiritrage, LLC Research

2011 Empiritrage, LLC. All Rights Reserved.

Volatility Regime Signal Over Time


Volatility Regime signal is dynamic from 01/1986 through 10/2012.

1 December 2012

Source: Empiritrage, LLC Research, Bloomberg

2012 Empiritrage, LLC. All Rights Reserved.

Simulation Details
1. The VIX series is spliced with OEX data. We use VIX Index from January 1, 1990 through August 31, 2012. For the period from January 1, 1986 to December 31, 1989 we use the VXO Index. 2. The following 5 asset classes are used in the back-test (referred to as the Core 5): a. FTSE NAREIT All Equity REITS Total Return Indexbenchmark for REITsFNERTR INDEX b. MSCI EAFE Indexbenchmark for investment in equity markets outside of U.S. and Canada NDDUEAFE INDEX c. MSCI EEM Indexbenchmark for investment in emerging marketsNDUEEGF INDEX d. Merrill Lynch 7-10 year government bond indexML1US10 INDEX e. SP500 IndexSPXT INDEX 3. Simulation results are from March 1, 1986 through August 31, 2012. 4. Portfolios are rebalanced monthly. 5. We utilized long-term simple moving average rules as a risk-management technique. The benefits of longterm MA rules as an effective risk-management tool was brought to the mainstream by Mebane Faber. We analyze a 12-month moving average rule (MA (2,12)) that compares the 2 month simply moving average (~40 days) and the 12 month simple moving averages (~250 days). The MA(2,12) rule is triggered if the 2 month MA goes below the 12 month MA. All MA rules are calculated off each asset class. When an MA rule is triggered, proceeds earn risk-free rate of return (measured by US T-bill). 6. No transaction costs are included in any of our analysis. All results are gross of any transaction fees, management fees, or any other fees that might be associated with executing the models in real-time.

1 December 2012

2011 Empiritrage, LLC. All Rights Reserved.

VBA Simulated Performance

1 December 2012

2011 Empiritrage, LLC. All Rights Reserved.

Outline
1. Benchmark Performance 2. VBA & Index Performance a) SP500 b)EAFE c) EEM d)REIT e) LTR 3. VBA & Core 5 Performance

1 December 2012

2011 Empiritrage, LLC. All Rights Reserved.

Benchmark Statistics (3/1/1986-8/31/2012)


CAGR Standard Deviation Downside Deviation Sharpe Ratio Sortino Ratio (MAR=5%) Worst Drawdown Worst Month Return Best Month Return Profitable Months

SP500 9.79% 15.73% 12.07% 0.39 0.47 -50.21% -21.58% 13.52% 63.21%

LTR 8.63% 6.52% 3.81% 0.61 0.92 -9.27% -5.71% 8.73% 67.61%

KEY: SP500=S&P 500 Total Return LTR = Merril Lynch 10-year U.S. Treasury Total Return EAFE = EAFE Total Return REIT = All Equity REITS Total Return Index EEM = MSCI Emerging Markets Index Core5_EW=Core5 equal-weight returns

Summary Statistics*
CAGR Standard Deviation Downside Deviation (MAR=5%) Sharpe Ratio Sortino Ratio (MAR=5%) Worst Drawdown Worst Month Return Best Month Return Profitable Months

EAFE 6.92% 18.24% 12.66% 0.25 0.27 -56.68% -20.18% 15.58% 58.81%

REIT 10.55% 18.52% 15.81% 0.43 0.43 -68.30% -31.67% 31.02% 59.75%

EEM 12.40% 24.61% 18.82% 0.45 0.52 -61.44% -28.91% 18.98% 61.64%

Core 5 EW 10.51% 12.68% 10.67% 0.55 0.55 -47.21% -19.43% 13.48% 67.30%

The typical story: decent returns, but scary drawdowns.


8 1 December 2012
Source: Empiritrage, LLC Research

2011 Empiritrage, LLC. All Rights Reserved.

VBA S&P 500 Summary Statistics


Summary Statistics*
CAGR Standard Deviation Downside Deviation (MAR=5%) Sharpe Ratio Sortino Ratio (MAR=5%) Worst Drawdown Worst Month Return Best Month Return Profitable Months Rolling 5-Year Win % Rolling 10-Year Win % DrawDown Total

Correlation *Returns start in 03/1986 for this strategy.

VBA_SP500 9.91% 7.53% 4.75% 0.79 1.00 -8.32% -8.32% 13.52% 86.79% ---1418.27% --

Vol Regime_VIX(10,30)_SP500 10.60% 10.20% 7.81% 0.66 0.72 -26.21% -10.90% 13.52% 80.82% 44.02% 65.83% -3671.68% 0.732

MA(2,12)_SP500 10.01% 12.39% 9.97% 0.54 0.56 -29.58% -21.58% 13.52% 73.27% 30.89% 17.59% -3382.63% 0.602

SP500 9.79% 15.73% 12.16% 0.45 0.48 -50.21% -21.58% 13.52% 63.21% 48.65% 42.71% -7131.59% 0.474

Asset Pricing Model Alpha (annual) CAPM 0.05 p-value*** 0.0005 3 Factor (FF) 0.05 p-value*** 0.0002 4 Factor 0.04 p-value*** 0.0022 5 Factor 0.04 p-value*** 0.0008 ***Italics denotes p-values significant at the 5% level; robust p-values

Rm-rf 0.21 0.0000 0.21 0.0000 0.24 0.0000 0.24 0.0000

SMB

HML

MOM

LQD

-0.09 0.0181 -0.10 0.0192 -0.10 0.0136

-0.07 0.0721 -0.04 0.2496 -0.05 0.1896

0.09 0.0005 0.09 0.0007

-0.07 0.0525

KEY: MA(2,12)_SP500 = Index with MA trading rule (2m vs. 12m) VBA_SP500 = Volatility regime indicator, then MA trading rule Vol Regime_VIX (10,30)_SP500 = Volatility regime indicator, only

The volatility regime indicator works; VBAvolatility regime & MA signalwork better.

1 December 2012

Source: Empiritrage, LLC Research

2012 Empiritrage, LLC. All Rights Reserved.

VBA EAFE Summary Statistics


Summary Statistics*
CAGR Standard Deviation Downside Deviation (MAR=5%) Sharpe Ratio Sortino Ratio (MAR=5%) Worst Drawdown Worst Month Return Best Month Return Profitable Months Rolling 5-Year Win % Rolling 10-Year Win % DrawDown Total

Correlation *Returns start in 03/1986 for this strategy.

VBA_EAFE 8.12% 8.99% 6.92% 0.49 0.47 -21.12% -10.42% 10.62% 88.36% ---2600.71% --

Vol Regime_VIX(10,30)_EAFE 9.86% 12.94% 9.79% 0.50 0.54 -38.04% -14.46% 15.58% 79.87% 40.15% 30.15% -5610.14% 0.689

MA(2,12)_EAFE 6.87% 13.19% 10.28% 0.31 0.29 -26.43% -14.01% 14.06% 73.90% 57.53% 90.95% -4273.89% 0.684

EAFE 6.92% 18.24% 12.66% 0.27 0.30 -56.68% -20.18% 15.58% 58.81% 50.97% 69.85% -8351.48% 0.493

Asset Pricing Model Alpha (annual) CAPM 0.04 p-value*** 0.0372 3 Factor (FF) 0.04 p-value*** 0.0360 4 Factor 0.03 p-value*** 0.0992 5 Factor 0.03 p-value*** 0.0724 ***Italics denotes p-values significant at the 5% level; robust p-values

Rm-rf 0.13 0.0000 0.13 0.0001 0.15 0.0001 0.15 0.0001

SMB

HML

MOM

LQD

0.02 0.5435 0.02 0.6127 0.01 0.7022

0.00 0.9240 0.02 0.6298 0.02 0.7280

0.08 0.0019 0.08 0.0021

-0.05 0.1798

KEY: MA(2,12)_EAFE = Index with MA trading rule (2m vs. 12m) VBA_EAFE = Volatility regime indicator, then MA indicator Vol Regime_VIX (10,30)_EAFE = Volatility regime indicator, only

The volatility regime indicator works; VBAvolatility regime & MA signalwork better.

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1 December 2012

Source: Empiritrage, LLC Research

2012 Empiritrage, LLC. All Rights Reserved.

VBA EEM Summary Statistics


Summary Statistics*
CAGR Standard Deviation Downside Deviation (MAR=5%) Sharpe Ratio Sortino Ratio (MAR=5%) Worst Drawdown Worst Month Return Best Month Return Profitable Months Rolling 5-Year Win % Rolling 10-Year Win % DrawDown Total

Correlation *Returns start in 03/1986 for this strategy.

VBA_EEM 13.49% 12.26% 7.89% 0.78 1.07 -24.31% -13.53% 15.59% 88.36% ---3336.07% --

Vol Regime_VIX(10,30)_EEM 15.18% 16.97% 12.53% 0.69 0.85 -45.64% -17.49% 17.15% 80.50% 49.03% 62.81% -6077.38% 0.712

MA(2,12)_EEM 13.54% 18.19% 14.10% 0.60 0.69 -35.41% -25.06% 18.98% 75.79% 39.00% 32.66% -4725.16% 0.668

EEM 12.40% 24.61% 18.80% 0.46 0.54 -61.44% -28.91% 18.98% 61.64% 47.88% 71.36% -10809.94% 0.491

Asset Pricing Model Alpha (annual) CAPM 0.08 p-value*** 0.0003 3 Factor (FF) 0.08 p-value*** 0.0004 4 Factor 0.08 p-value*** 0.0010 5 Factor 0.07 p-value*** 0.0020 ***Italics denotes p-values significant at the 5% level; robust p-values

Rm-rf 0.17 0.0000 0.16 0.0001 0.18 0.0001 0.18 0.0001

SMB

HML

MOM

LQD

0.12 0.0655 0.11 0.0821 0.12 0.0739

0.05 0.4738 0.07 0.2547 0.07 0.2310

0.06 0.1056 0.06 0.1061

0.04 0.3939

KEY: MA(2,12)_EEM = Index with MA trading rule (2m vs. 12m) VBA_EEM = Volatility regime indicator, then MA indicator Vol Regime_VIX (10,30)_EEM = Volatility regime indicator, only

The volatility regime indicator works; VBAvolatility regime & MA signalwork better.

11

1 December 2012

Source: Empiritrage, LLC Research

2012 Empiritrage, LLC. All Rights Reserved.

VBA REIT Summary Statistics


Summary Statistics*
CAGR Standard Deviation Downside Deviation (MAR=5%) Sharpe Ratio Sortino Ratio (MAR=5%) Worst Drawdown Worst Month Return Best Month Return Profitable Months Rolling 5-Year Win % Rolling 10-Year Win % DrawDown Total

Correlation *Returns start in 03/1986 for this strategy.

VBA_REIT 10.40% 8.63% 5.41% 0.75 0.98 -14.39% -10.88% 10.39% 84.59% ---1807.35% --

Vol Regime_VIX(10,30)_REIT 12.64% 12.15% 7.49% 0.73 1.02 -24.63% -17.31% 31.02% 78.62% 37.07% 42.21% -2789.50% 0.693

MA(2,12)_REIT 11.01% 12.07% 9.35% 0.63 0.68 -27.04% -15.24% 10.39% 70.75% 33.98% 24.62% -3585.71% 0.710

REIT 10.55% 18.52% 15.81% 0.44 0.44 -68.30% -31.67% 31.02% 59.75% 42.47% 31.66% -7157.83% 0.459

Asset Pricing Model Alpha (annual) CAPM 0.06 p-value*** 0.0007 3 Factor (FF) 0.05 p-value*** 0.0014 4 Factor 0.05 p-value*** 0.0017 5 Factor 0.05 p-value*** 0.0022 ***Italics denotes p-values significant at the 5% level; robust p-values

Rm-rf 0.12 0.0000 0.12 0.0003 0.13 0.0002 0.13 0.0002

SMB

HML

MOM

LQD

0.14 0.0006 0.14 0.0008 0.14 0.0008

0.13 0.0073 0.13 0.0063 0.14 0.0061

0.02 0.4456 0.02 0.4498

0.02 0.5620

KEY: MA(2,12)_REIT = Index with MA trading rule (2m vs. 12m) VBA_REIT = Volatility regime indicator, then MA indicator Vol Regime_VIX (10,30)_REIT = Volatility regime indicator, only

The volatility regime indicator works; VBAvolatility regime & MA signalwork better.

12

1 December 2012

Source: Empiritrage, LLC Research

2012 Empiritrage, LLC. All Rights Reserved.

VBA LTR Summary Statistics


Summary Statistics*
CAGR Standard Deviation Downside Deviation (MAR=5%) Sharpe Ratio Sortino Ratio (MAR=5%) Worst Drawdown Worst Month Return Best Month Return Profitable Months Rolling 5-Year Win % Rolling 10-Year Win % DrawDown Total

Correlation *Returns start in 03/1986 for this strategy.


Asset Pricing Model CAPM p-value** 3 Factor (FF) p-value** 4 Factor p-value** 5 Factor p-value** Alpha (annual) 0.01 0.1200 0.01 0.1279 0.01 0.2080 0.01 0.1867

VBA_LTR 5.73% 4.30% 3.36% 0.43 0.20 -7.74% -5.71% 5.22% 84.59% ---1185.14% --

Vol Regime_VIX(10,30)_LTR 6.13% 4.48% 3.38% 0.50 0.32 -7.74% -5.71% 5.22% 82.08% 20.85% 2.01% -1185.14% 0.951

MA(2,12)_LTR 8.05% 6.20% 4.20% 0.67 0.71 -7.30% -5.71% 8.73% 72.33% 8.11% 2.01% -1458.99% 0.670

LTR 8.63% 6.52% 4.08% 0.72 0.86 -9.27% -5.71% 8.73% 67.61% 5.79% 0.00% -1546.69% 0.633

Rm-rf -0.01 0.5131 0.00 0.9542 0.01 0.5966 0.01 0.6020

SMB

HML

MOM

LQD

-0.04 0.2101 -0.04 0.1743 -0.04 0.1767

0.02 0.4846 0.02 0.2960 0.02 0.3168

0.02 0.1557 0.02 0.1555

0.00 0.8280

KEY: MA(2,12)_LTR = Index with MA trading rule (2m vs. 12m) VBA_LTR = Volatility regime indicator, then MA Vol Regime_VIX (10,30)_LTR = Volatility regime indicator, only

VBA, the volatility regime only, and MA rules dont work in the context of long-bonds.

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1 December 2012

Source: Empiritrage, LLC Research

2012 Empiritrage, LLC. All Rights Reserved.

VBA Summary Statistics


Summary Statistics*
CAGR Standard Deviation Downside Deviation (MAR=5%) Sharpe Ratio Sortino Ratio (MAR=5%) Worst Drawdown Worst Month Return Best Month Return Profitable Months Rolling 5-Year Win % Rolling 10-Year Win % DrawDown Total

Correlation *Returns start in 03/1986 for this strategy.

VBA_Core 5 EW 9.76% 5.28% 3.57% 1.07 1.26 -9.64% -4.86% 6.32% 87.42% ---1166.77% --

Vol Regime Only_Core 5 EW 11.26% 8.24% 6.01% 0.88 1.01 -26.22% -8.85% 13.48% 84.59% 30.50% 44.22% -2487.00% 0.720

Core 5 EW_MA 10.37% 8.30% 6.72% 0.77 0.78 -18.96% -11.90% 7.96% 71.38% 27.80% 15.58% -1967.53% 0.622

Core 5 EW 10.51% 12.68% 10.67% 0.55 0.55 -47.21% -19.43% 13.48% 67.30% 47.49% 49.75% -5204.84% 0.467

Asset Pricing Model Alpha (annual) CAPM 0.05 p-value*** 0.0000 3 Factor (FF) 0.05 p-value*** 0.0000 4 Factor 0.04 p-value*** 0.0000 5 Factor 0.04 p-value*** 0.0000 ***Italics denotes p-values significant at the 5% level; robust p-values

Rm-rf 0.12 0.0000 0.12 0.0000 0.14 0.0000 0.14 0.0000

SMB

HML

MOM

LQD

0.03 0.1994 0.03 0.2689 0.03 0.2934

0.03 0.3362 0.05 0.0606 0.04 0.0760

0.06 0.0006 0.06 0.0007

-0.01 0.5697

KEY: Core5_EW=Core5 equal-weight returns Core5 EW_MA = MA indicator applied on individual assets, then equal-weighted returns Vol Regime_Only_Core5 EW = Volatility regime indicator applied to Core 5 VBA_Core5 EW = Volatility regime indicator, then MA indicator, applied to the Core 5

The volatility regime indicator works; VBAvolatility regime & MA signalwork better.

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1 December 2012

Source: Empiritrage, LLC Research

2012 Empiritrage, LLC. All Rights Reserved.

Annual Returns (3/1/1986-8/31/2012)


VBA_Core 5 EW 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012_YTD 6.24% 26.14% 13.58% 19.29% 5.97% 6.68% 3.77% 10.77% 10.72% 14.89% 3.78% 8.09% 10.12% 16.73% 9.37% 5.80% 4.08% 12.81% 16.13% 1.52% 24.35% 17.18% -8.08% 9.72% 7.38% 4.03% 3.66% Vol Regime Only_Core 5 EW 6.40% 34.69% 21.18% 22.01% 7.88% 11.54% 4.28% 11.67% 10.94% 14.53% 4.16% 4.87% 15.47% 19.17% 4.84% 1.98% -2.93% 24.65% 16.13% 1.69% 24.44% 18.27% -19.06% 29.50% 10.92% 1.61% 12.27% Core 5 EW_MA 16.22% 3.04% 13.64% 23.49% -4.23% 19.34% 6.58% 25.74% 0.19% 17.14% 11.72% 13.32% 5.61% 17.70% 2.39% 6.63% -0.81% 23.43% 18.71% 13.39% 22.47% 10.81% -2.94% 15.57% 8.65% -2.59% -0.77% Core 5 EW 16.41% 11.29% 21.68% 26.28% -8.46% 30.95% 6.05% 28.88% 0.48% 15.90% 14.19% 10.45% 2.90% 19.33% -3.51% -2.78% -4.81% 32.11% 18.92% 13.58% 22.46% 9.90% -32.41% 31.77% 16.08% -1.57% 10.03%

2008 is the only negative annual return.


15 1 December 2012
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2011 Empiritrage, LLC. All Rights Reserved.

Invested Growth (3/1/1986-8/31/2012)

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2011 Empiritrage, LLC. All Rights Reserved.

Market Cycle Performance (3/1/1986-8/31/2012)

VBA controls risk during bear markets and participates in bull markets.
17 1 December 2012
Source: Empiritrage, LLC Research

2011 Empiritrage, LLC. All Rights Reserved.

Rolling CAGR Analysis (3/1/1986-8/31/2012)

VBA delivers consistent results.


18 1 December 2012
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2011 Empiritrage, LLC. All Rights Reserved.

Drawdown Analysis (3/1/1986-8/31/2012)

VBA controls risk; 36-month drawdowns are positive


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Source: Empiritrage, LLC Research

2011 Empiritrage, LLC. All Rights Reserved.

ST Stress Test Analysis (3/1/1986-8/31/2012)

VBA is not affected by major market stress events.


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2011 Empiritrage, LLC. All Rights Reserved.

Rolling Drawdown Analysis (3/1/1986-8/31/2012)

VBA consistently controls risk; Core5 EW strains during the 2008 Financial Crisis as correlations go to 1.
21 1 December 2012
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2011 Empiritrage, LLC. All Rights Reserved.

DISCLAIMER
The views expressed are the views of the authors and are subject to change at any time based on market and other conditions. This document shall not constitute an offer to sell or the solicitation of any offer to buy any security and should not be construed as such. References to specific securities and issuers are for illustrative purposes only and not intended to be, and should not be interpreted as, recommendations to purchase or sell such securities. While all the information prepared for this document is believed to be accurate, Empiritrage, LLC makes no express warranty as to the completeness or accuracy, nor can it accept responsibility for errors appearing in the document. Performance figures contained herein are unaudited and prepared by Empiritrage, LLC. They are intended for illustrative purposes only. Past performance is not indicative of future results, which may vary. There is a risk of substantial loss associated with trading commodities, futures, options and other financial instruments. Before trading, investors should carefully consider their financial position and risk tolerance to determine if the proposed trading style is appropriate. Investors should realize that when trading futures, commodities and/or granting/writing options one could lose the full balance of their account. It is also possible to lose more than the initial deposit when trading futures and/or granting/writing options. All funds committed to such a trading strategy should be purely risk capital. Hypothetical performance results (e.g., quantitative backtests) have many inherent limitations, some of which, but not all, are described herein. No representation is being made that any fund or account will or is likely to achieve profits or losses similar to those shown herein. In fact, there are frequently sharp differences between hypothetical performance results and the actual results subsequently realized by any particular trading program. One of the limitations of hypothetical performance results is that they are generally prepared with the benefit of hindsight. In addition, hypothetical trading does not involve financial risk, and no hypothetical trading record can completely account for the impact of financial risk in actual trading. For example, the ability to withstand losses or adhere to a particular trading program in spite of trading losses are material points which can adversely affect actual trading results. The hypothetical performance results contained herein represent the application of the quantitative models as currently in effect on the date first written above and there can be no assurance that the models will remain the same in the future or that an application of the current models in the future will produce similar results because the relevant market and economic conditions that prevailed during the hypothetical performance period will not necessarily recur. There are numerous other factors related to the markets in general or to the implementation of any specific trading program which cannot be fully accounted for in the preparation of hypothetical performance results, all of which can adversely affect actual trading results. Hypothetical performance results are presented for illustrative purposes only. There is no guarantee, express or implied, that long-term return and/or volatility targets will be achieved. Realized returns and/or volatility may come in higher or lower than expected.

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2012 Empiritrage, LLC. All Rights Reserved.