Vous êtes sur la page 1sur 3

The Eclectica Fund


28 February 2011

Discretionary Global Macro

The investment objective of the Fund is to achieve capital appreciation, whilst limiting risk of loss, by investing globally long and short mainly in quoted securities, government
bonds and currencies, but also in commodities and other derivative instruments.

Monthly and Yearly Performance % (€ A Shares net of fees) AUM: $234, 600, 000
Year Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year
2002 +0.0 -4.8 -0.1 +0.8 -4.2
2003 +5.2 -8.1 -4.6 +8.8 +16.2 +1.9 +1.8 +4.2 +7.8 +1.9 -3.7 +12.4 +49.9
2004 +4.0 -1.0 +4.6 -4.9 -0.9 -1.7 -0.2 +0.5 +3.4 +5.7 +1.7 -3.0 +8.0
2005 +2.4 +9.7 -2.5 -0.1 -4.8 +3.5 +0.0 +4.2 +8.5 -7.0 -4.8 +5.9 +14.2
2006 +12.7 -8.2 -0.8 +3.6 -5.4 +3.6 -5.9 -2.1 +2.2 -2.1 +0.9 -0.6 -3.7
2007 +0.7 +1.7 -2.9 +0.7 +1.8 +3.7 -1.0 -6.4 +1.8 -1.8 -3.4 +7.5 +1.6
2008 +5.5 +18.0 -15.6 -2.7 -3.9 +2.4 -9.1 -1.7 -5.7 +49.8 +2.9 +0.4 +31.2
2009 +1.9 +3.7 -2.1 -5.4 -0.9 -1.4 -1.7 +0.9 -0.1 -1.9 +3.0 -4.0 -8.0
2010 +3.7 +5.2 -0.2 -0.5 +1.7 +2.5 +0.6 +1.6 -3.1 -1.9 -4.3 -2.1 +2.7
2011 -1.1 -1.0 -2.1

Source: Daiwa. Calculation on NAV basis.

Monthly Performance Attribution Fund Performance Since Inception

250 Fund HFR Macro Index

Equity (Net) 0.18%
Carry -0.14% 200
Bonds -0.15%
CDS -0.72% 125
Currency -0.09%
Commodity -0.08%

-0.8% -0.4% 0.0% 0.4% *HFR Macro Index in USD – Assumes constituent funds performance is fully hedged.
Bloomberg Ticker: HFRXM Index. Past performance is not a guide to future returns.

As I am sure you all know, we have been patiently waiting (and waiting, and waiting) for someone to ring a bell indicating that the global
inventory cycle has peaked. At this point, it is our intention to put rate risk back on our book. However, as we have diligently awaited a more
prosperous underwriting background the Fund lost 1% in February.

Rates cost a further 48bps, as the option premiums have contracted. The Japanese CDS portfolio gave back 72bp and elsewhere in the book
long equities made 31bps, tobacco bonds made 23bps, shorts cost 15bps, and FX cost 13bps.

News that Nippon Steel has agreed to merge with Sumitomo Metal saw credit spreads tighten in the steel sector where we maintain a large
exposure. With little business overlap and with both groups already making full use of their blast furnace capacity we do not share the
market's enthusiasm for this deal. Rather, we see it as a shotgun wedding that seeks to bolster Sumitomo's perilous financial condition. The
proposed deal will raise the combined entity's net debt to $29bn. We would remind you that steel is a volatile and cyclical business and that
both companies export nearly half of their output. Are the odds of a debt restructuring event really a 200:1 long shot? And yet Japan's
financial community shows no let up in their enthusiasm to risk $10m (less recovery) to receive annual premiums of just $60k per annum.

We will comment on the consequences of the Japanese earthquake in next month's report and will be shortly sending the mid-month
estimated NAV. I am available should anyone desire more information.

Before this dreadful event we commenced rebuilding some modest rate exposure. We were motivated by the prospect that member
countries of the world's two fixed exchange rate regimes (i.e. the Euro countries and the Asian dollar peggers) would tighten or continue
tightening monetary policy this year.

In fact, Mr. Trichet so much as confirmed a European hike in his hawkish address at the March ECB meeting. Effectively, he raised rates. In
doing so he risks drawing an undesirable comparison with the policy failures of the 1920s that came to a head in 1931 when the UK was forced
to increase rates despite having already endured six years of peripheral European-like fixed exchange rate austerity.
The Eclectica Fund
Asia's creditor nations have of course been tightening their monetary policy since January 2010 and with the usual leads and lags one should
soon be able to calibrate its effect
PERFORMANCE on the real economy.
ATTRIBUTION Regardless, this restrictive policy is set to continue and in our opinion represents a
significant and potentially calamitous development for the global economy.
28 February 2011
In a sense, the macro outcome hangs on one’s interpretation of quantitative easing. It is my assertion that monetary easing represents an
enormous change to the benign policy which has driven global growth for the past 15 years. I equate the easing program with Roosevelt's
devaluation of the dollar in 1931 (that year keeps reappearing). By this I mean it could mark the moment when modern American policy
makers rejected globalisation. It is a direct attempt to address and remove the free rider (or mercantilist) problem associated with managing
the dollar as a public international good.

For the dollar's role as the world's sole reserve currency to continue I would contend that it is necessary that any one country's adoption of
the exchange rate should not subtract from another’s economic participation. In other words, China's gaming of the system via its cheap
currency peg should not subtract from the benefit to the US from having richer nations with which to trade.

However, the elevated state of private sector indebtedness in the US has thrown a spanner in the works. China's vendor financing agreement
remains available but the willingness of the US private sector to borrow more has been chastened by the memories of 2008; perhaps there is
a limit after all to the amount of leverage any economy can sustain for any given rate of interest.

As a result of this paradigm shift the dollar's role as the international reserve currency can no longer be viewed so benignly inside America: its
unemployment remains stubbornly high whereas China's total exports have recovered and are now well above their pre-2008 level.
Furthermore, with the US economy nearly slipping back into recession last summer the free rider nature of an international competitor's
under-valued exchange rate could no longer be assuaged by the prospect of a better tomorrow, i.e. the much promised realignment of the
Chinese economy from exports to consumption. With China unlikely to voluntarily cede the competitive advantage of a cheap nominal
currency, QE2 was chosen to do the job for them (by seeking a real appreciation in the renminbi via higher domestic Chinese prices).

I get this. I even sympathise with some of it, but it potentially opens up a can of worms. Please allow me to explain.

Liaquat Ahamed, in his essay in the March/April edition of Foreign Affairs magazine, raises the crucial concept of policy asymmetry as a
potential Achilles’ heel in the orderly management of pegged exchange rates. Europe's deficit countries have no policy choice; without a
currency of their own they must contract credit in order to control prices and regain international competitiveness. Of course there is no
similar compulsion for China and other creditors to loosen their monetary policy and allow domestic prices to rise. Such action would eat
away at their cherished export competitiveness.

Fed QE

And High
Sovereign Debt
Additional Fiscal

But Zero Lower

Rejects China
Bound Restricts
Gaming FX
Monetary Policy

Fed Seeks to
And with a six
Create Domestic
month lag US /
Price Inflation
Germany Slows

Fed Seeks to
And so EM Growth Revalue China et al
Slows FX Real v Nominal

And Euro Debtor

But China Imposes
Countries Raise
Tighter Credit
Rates Despite High
Controls to Offset
Unemployment a
Fed Stimulus
la 1931
The Eclectica Fund
Do not be mistaken; it was pursuit of their own self-interest that encouraged China to “take one for the team” back in 2008 when it
unilaterally boosted public spending and sanctioned a massive surge in bank lending. If we measure success on the basis of GDP growth, then
this decision has been vindicated. Chinese government data reveals a major turnaround in the contribution of net exports to growth, from
-3.7pct in 2009 to +0.8pct in 2010. Yet it is important to recognise that there was no exigent need to act in the way they did; they could just as
28 February 2011
easily have chosen to reduce leverage and withdraw from risky overseas lending.

Nonetheless, the ramifications of China’s actions during the crisis ensured the development of a nascent but very real
over-investment/property bubble. The Chinese are at the same time nursing an unprecedented income gap between the haves and the
have-nots. QE2 undoubtedly exacerbates these social disparities even further.

The eerie similarities between the Great Recession and the depression of the 1920s have to some extent dissipated, due in large part to the
willingness of Asian creditors to stimulate their domestic economies and bridge the gap left in the wake of severe economic contraction in the
West. Recently, however, the spectre of domestic inflation has prompted the East to remove the punch bowl.

Now the question to ask has to be whether or not China would be prepared to assume the role of hero all over again if global GDP runs out of
steam. The Fed's antagonistic quantitative easing program may have sapped its willingness to help out “team world”, in which case the only
remedy for a prospective slow down will be further QE and a Western commitment for rates to remain lower for longer.

Asset Allocation Summary (% NAV) CDS Position Breakdown Summary (% NAV)

Currency (7.9)
Sovereign (4)
Long Equity (15.5)
Jap Steel (122)
Short Equity (-2.9)
Jap Shipping (36)
Commodity (4.2)
Corp Bonds (3.6) Jap Chemical (42)

Gov Bonds (-0.2) Capex (47)

Interest Rates (2.7) Corp Other (13)
CDS (5.5)

IRS DV01 (bps) EUR GBP USD JPY AUD HUF Notional Annual CV01 Profit at Previous Best
Outright Swaps - - - - - 0.3 Exposure Carry (bps)* 2yr High Case**
Swap Curve - - 1.3 - - - Total
264 -1.6 9.5 26.0 199.7
FRA/OIS Spreads 4.5 2.2 - 9.6 - -

• Commodity & FX include listed & OTC derivatives, cash or futures on a net delta basis. * CV01 figure represents basis point contribution for a 1bp rise in the weighted average credit spread
• Equity include listed & OTC derivatives, cash or futures on a net delta basis. of the portfolio.
• CDS figure represents max loss. ** Based on Corporate CDS Recovery Rate of 25%.
• Interest rate figure represents net option premium.
• DV01 figure represents basis point contribution for a 1bp rise/steepening/widening of the
underlying rate/curve/spread.

Fund Information
Fund Details Fees, Costs & Redemption Structure
Investment Manager Eclectica Asset Management LLP Dealing ‘A’ Shares 1st & 15th of each month
Administrator Daiwa Europe Fund Managers Ireland Ltd Dealing ‘B’ & ‘C’ Shares 1st of each month
Fund Managers Hugh Hendry & Espen Baardsen Dealing Notice 7 days before dealing day
Structure Cayman Islands OEIC within a Master Feeder structure Dealing Line (+353) 1 603 9921

Inception Date 30 September 2002 Dealing Fax (+353) 1 647 5830

Share Classes €/£/$ Dealing Email daiwaSHSdealing@daiwagas.com
Minimum Investment €100,000 or equivalent in £/$100,000 AMC ‘A’ Shares 1%
Dividends Accumulated AMC ‘B’ & ‘C’ Shares 2%
Stock Exchange Listing Irish Performance Fee 20%
Exit Fee 1% exit fee on reds within 12 months

Service Providers Eclectica Asset Management: Investor Relations

Custodian/Prime Broker 1) Morgan Stanley and Co Int Plc Telephone +44 (0)20 7792 6400
2) Credit Suisse Securities (Europe) Ltd Email info@eclectica-am.com
Custodian Daiwa Securities Trust & Banking (Europe Plc)
Auditors Deloitte & Touche

This document is being issued by Eclectica Asset Management LLP ("EAM"), which is authorised and regulated by the Financial Services Authority. The information contained in this document relates to the promotion of shares in one or more unrecognised
collective investment schemes managed by EAM (the "Funds"). The promotion of the Funds and the distribution of this document in the United Kingdom is restricted by law. This document is being issued by EAM to and/or is directed at persons who are
both (a) professional clients or eligible counterparties for the purposes of the Financial Services Authority's Conduct of Business Sourcebook ("COBS") and (b) of a kind to whom the Funds may lawfully be promoted by a person authorised under the Act (an
"authorised person") by virtue of Section 238(5) of the Financial Services and Markets Act 2000 (the "Act") Chapter 4.12 of COBS. No recipient of this document may distribute it to any other person. No representation, warranty or undertaking, express or
implied, is given as to the accuracy or completeness of, and no liability is accepted for, the information or opinions contained in this document by any of EAM, any of the funds managed by EAM or their respective directors. This does not exclude or restrict
any duty or liability that EAM has to its customers under the UK regulatory system. This document does not constitute or form part of any offer to issue or sell, or any solicitation of any offer to subscribe or purchase, any securities mentioned herein nor
shall it or the fact of its distribution form the basis of, or be relied on in connection with, any contract therefor. Recipients of this document who intend to apply for securities are reminded that any such application may be made solely on the basis of the
information and opinions contained in the relevant prospectus which may be different from the information and opinions contained in this document. The value of all investments and the income derived therefrom can decrease as well as increase. This may
be partly due to exchange rate fluctuations in investments that have an exposure to currencies other than the base currency of the relevant fund. Historic performance is not a guide to future performance. All charts are sourced from Eclectica Asset
Management LLP. Side letters: Some hedge fund investors with significant interests in the fund receive periodic updates on the portfolio holdings. © 2005-11 Eclectica Asset Management LLP; Registration No. OC312442; registered office at 6 Salem Road,
London, W2 4BU.6