BETA 2 BROCHURE

Investment Boutique

With all the stimulus measures Central Banks around the world have been injecting into the global financial markets and the fear surrounding the markets once the unwinding process begins, can you afford to ignore opportunities in the world’s largest, most liquid market?

Investment Boutique

Our goal at Beta 2 is to position our clients portfolios in line with the technical

market climate, and to trade with or against these positions on a daily basis

to increase the profitability levels, or to hedge our portfolio risk

About us

Beta 2 are an Investment Boutique and were formed in 2007 in the midst of the credit crunch to attempt to exploit opportunities and volatility that would be created in an ever changing market climate. We offer trading advice to HNW individuals, Institutions, Pension Funds and Family Offices.

Beta 2 trade on average over one billion per month in a variation of currencies and as an Investment Boutique, the service is personalised to the individual and their investment objectives.

Since formation, Beta 2 has made great strides in its pursuit of excellence for our clients. Offering the trading expertise of an institution and the personalised service of a boutique we bring the two together to give our clients the best of both worlds.

Our vision is to become a world leading business in a highly competitive and highly regulated marketplace. We are constantly re-appraising ourselves and further developing our business model to ensure we remain assured and confident in an ever changing landscape through our advisory service. The focus of Beta 2 is to generate long term capital growth primarily by maintaining a well diversified exposure to a wide range of global currencies, using a full range of trading strategies to achieve this.

Beta 2 aims to provide attractive, positive alpha returns, in all market conditions through our advisory service.

In what has been a tumultuous time in the markets since the start of the Global Financial Crisis, Beta 2 has been guiding its clients into the FX and precious metals market with the aim of bringing them profitable returns.

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What is the Forex market?

The foreign exchange market, also referred to as the ‘forex’ or ‘FX’ market is the largest financial market in the world, with a daily average turnover of $5 trillion which is more than 10 times the turnover of ALL global equity markets combined.

The FX market is the simultaneous buying of one currency and selling of another. Currencies are traded in pairs, for example EUR/USD or USD/JPY. About 5% of daily turnover is from companies and governments that buy or sell products and services in foreign countries or must convert profits made in foreign currencies into their domestic currencies. The other 95% is trading for profit or speculation.

Why trade the FX market?

The FX market is the most heavily traded market in the world, with currency being the single most liquid asset class. Trading in foreign exchange is one of the purest ways to play macro-economic themes, as currencies tend to move together with changes in their countries underlying economic condition.

Regardless of the economic condition, there are always opportunities to realise a profit in these markets so it is no wonder investors are shifting larger sections of their portfolio into the FX market.

The global financial crisis started in 2007 with the collapse of the US housing bubble causing the values of securities tied to the US property market to plummet, damaging financial institutions globally.

The collapse of Bear Stearns and Lehman Brothers, declines in credit availability and damaged investors confidence had an impact on global stock markets where equities suffered huge losses during 2008 and early 2009. Economies worldwide slowed during this period, as credit tightened and international trade declined.

Following Lehman’s bankruptcy, many financial markets experienced large disruptions with a sharp increase in volatility. With limited liquidity in various asset classes, many investors turned to the FX markets to hedge risk exposure.

Since then, governments and central banks have responded with unprecedented fiscal stimulus, monetary policy expansion and institutional bailouts which in turn has lead to a strong rebound in equities.

Now the pendulum of the ‘risk on/risk off’ dynamics seems to play a large part for global FX moves. At present there does not appear to be a one-size-fits-all model for FX and therefore our goal at Beta 2 is to position our clients’ portfolio in line with what we believe to be the market climate from a technical perspective, and to trade with or against these positions on a daily basis with the aim to either yield profits, or hedge the portfolio risk.

We structure portfolios to attempt to profit in any market environment

‘Risk On’ – A climate where the sentiment turns positive and equities perform well, in which case Beta 2 would look to take advantage of this climate through holding higher yielding/commodity type currencies like AUD, CAD and EUR.

An example of this would be a year like 2009, when Central banks started injecting liquidity into the markets; sentiment improved, and so did the outlook for the FX arena. Equities bounced off their lows from the previous year and high yielding currencies like AUD, CAD and EUR appreciated. In fact AUD increased in value by 25% vs. the USD and 31% vs. the JPY.

Markets are experiencing a similar relationship this year:

Risk On/Risk Off and Diversification:

The acceleration of the credit crisis in late 2008 took the financial crisis to a new phase in which financial markets began to trade as one. This trading style is characterised by the phraseology “risk-on, risk-off”.

In the extreme of this scenario all trades boil down to the same variable – the market’s attitude to risk.

‘Risk Off’ – A climate where asset classes across the board underperform, and sentiment is poor. In this scenario ‘safe haven/low yielding’ currencies would perform well - like JPY, USD and CHF. 2008 was a perfect example of this climate when FTSE depreciated over 30% and at the same time Pound Sterling depreciated vs. the USD (27%), the EUR (22%), and the JPY (37%).

(Chart of FTSE – 2008/9 vs. chart of GBP/JPY)

FTSE – 01/01/2008 to 01/03/2009 FTSE – 25/05/2012 to 25/05/2013

EUR/JPY – 25/05/2012 to 25/05/2013GBP/JPY – 01/01/2008 to 01/03/2009

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FX Facts:

Geographical Spread

London 36.7% (due to strong geographical location) USA 18% Singapore 6%

Source: Bank for International Settlements, March 2012 Quaterly Review

(FX traded in Trillions)

Source: BIS Triennial FX survey, Lighthouse Securities

Tokyo 5% Hong Kong 5% Australia 4%

FX Market Volume compared to other markets

Average daily volumes

US Treasury Bonds $350 billion US Stock Market $12 billion FX Market $4,980 billion

FX daily turnover is more than 10 times the turnover of ALL global equity markets combined!

Risk On/Risk Off relationship between FTSE & Japanese Yen since the Global Financial Crisis

2008 – FTSE down 30% Yen vs. Pound Sterling up 37%

2009 – FTSE up 17% Yen vs. Pound Sterling down 6%

2010 – FTSE up 9% Yen vs. Pound Sterling up 12%

2011 – FTSE down 7.5% Yen vs. Pound Sterling up 6%

2012 – FTSE up 10% Yen vs. Pound Sterling down 20%

The illustration above shows an example of one of the ‘Risk On/Risk Off’ relationships that exist in the financial market and why it is imperative to consider FX as a potential diversification for an investment portfolio.

At Beta 2, we will look to position clientele portfolios in line with the market sentiment and attempt to yield returns regardless of the market climate.

FX Terminology

Traders tend to use ‘FX Terminology’ to shorten names, increase clarity and speed up conversations

KIWI New Zealand Dollar LOONIE Canadian Dollar STOKKIE Swedish Krone NOKKIE Norwegian Krone

CABLE GBP/USD EURO EUR/USD or EUR (e.g. Euro-Yen) YEN Japanese Yen AUSSIE Australian Dollar (AUD-USD = Aussie-Dollar)


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We believe we are experts in risk management, managing volatility, hedging

portfolios whilst maintaining a bias, and ultimately- in yielding percentages

Precious Metals: Gold and Silver

In the last four years, gold has rallied in near-perfect conditions of crisis coupled with unprecedented monetary easing. In particular, the scope of unconventional monetary easing has seen investors question paper assets. However, with equities pushing higher since the back end of 2012 and less concerns regarding paper assets, this source of demand has clearly waned.

If the economy is moving towards some level of normalisation and faith in the paper assets continues to improve, then we could see further outflows. That said, we believe the bulk of liquidation has already occurred and that a large component of the market still has a “buy and hold” trading strategy.

Similarly, a renewed period of risk aversion, uncertainty, or inflation could result in a renewed wave of Gold buying, supporting prices further.

Another support for Gold could come through retail demand – particularly from China and India.

Jewellery is the single largest component of physical demand, comprising 45% of total demand. This year, as gold moved lower, there has been a notable reaction in physical demand by consumers and investors in the emerging world, and, to a lesser degree, in mature markets.

After many years as substantial contributors to supply, central banks have swung to being significant net buyers of gold in the past three years. The recent drop in price should not dissuade central banks from what appears to be a long-term policy of gold accumulation. They are less concerned about potential price appreciation and are more attracted to bullion, principally as a means to diversify away from the USD and as an overall strategy of portfolio diversification. Thus, USD-laden central banks, particularly in the emerging world, should continue to accumulate more gold this year and next, regardless of the recent sell-off.

The silver market is traditionally more volatile and more heavily influenced by retail investors than the gold market. The slide in gold prices clearly undermined silver prices.

According to Stephen King (chief economist of HSBC), global industrial production is forecast to rise to 3.9% this year from 2.5% in 2012. Growth is forecast to be higher in emerging economies as well, which are also more silver-intensive, rising 7.3%, from 4.4% in 2012.

In any event, should the metals rise or fall; Beta 2 can take advantage of this due to being able to long or short the market. If for example the business cycle puts gold in an uncomfortable position, and we see higher growth, increases of nominal yields and subdued inflationary pressure all limiting investor buying, then we will be well placed to short the market.

Gold

Silver

Please note, the figures in these charts refer to the past and past performance is not a reliable indicator of future results. The value of your investments can both increase and decrease in value and before investing you should be fully aware of the risk involved.

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Gold USD/oz

27 June 2008 - 26 June 2013

Silver USD/oz

27 June 2008 - 26 June 2013

Trading Strategies

We utilise a combination of trading strategies depending on the market climate, and our investor’s psychology towards risk and drawdown’s. For instance, trend following system’s are renowned to generally have more losing trades than winning trades as traders are comfortable being stopped out of trades consistently with small losses until they finally catch the trend and overall yield a profit.

Some clients aren’t and wouldn’t be comfortable with a strategy like this as psychologically they couldn’t handle getting far more trades wrong than right, and would doubt our methodologies and maybe even cease trading before having the chance to catch that trend or two which ultimately would have resulted in their account being profitable.

On the other hand counter trend systems are generally perceived as trading strategies that get far more trades right than they get wrong, but when they get one wrong, the loss on this individual trade is far larger than their series of small individual trade winners. Overall their account may be up, but if they have a bad run of 2 or 3 larger losses they may begin to doubt the system once again.

This is why at Beta 2 we utilise trading systems that not only operate effectively in certain market climates but also work effectively in line with client psychologies.

We may use trend following systems, counter trend systems, break out systems, fading break outs, and volatility systems amongst many others.

More importantly, regardless of what trading systems we employ we always attempt to manage risk as effectively as possible by having balanced portfolios that can hopefully benefit regardless of whether we have a ‘risk on’ investment climate, or a ‘risk off’ climate.

Even if we believed Euro was going to get weaker, we wouldn’t have all our positions shorting the Euro, although the bias of our portfolio would certainly be weighted towards this. Our methodology builds portfolios of multiple smaller positions, with some form of market bias but with hedges throughout the portfolio.

Risk Management

The markets we trade are perceived to be at the higher end of the investment risk spectrum, but regardless of the clients risk appetite we believe we can cater for them.

Our technical trading systems can be utilised for a low risk client (in a higher risk market) to a very high risk client. Quite simply we modify our position sizes. Some clients risk as little as 0.4% of their portfolio per position, where others may risk as high as 2 or 3% per position. Considering we often have 12-14 positions on our portfolios, we suggest closer to the former percentage figure. The most important thing for us is to ascertain exactly what risk/volatility the client is comfortable with.

Every client we manage has a different outlook towards investing and their portfolios are structured in a manner which reflects their psychology towards both winning and losing trades. The principle objective of risk management is to anticipate the potential for financial loss and to implement a plan that strives to minimise the occurrence and the impact of losses that occur. Hence, why our traders will tailor a bespoke risk management strategy to suit your own independent risk profile thus minimising the risk you are exposed to but maximising your profit potential..

We aim to work on risk to reward ratios which will be described to the client at the inception of the relationship, as this will ensure both parties understand the type of volatility we are comfortable with, and ultimately- to meet the objectives of the client.

At Beta 2, we feel it is imperative not to underplay the risks as drawdowns are part and parcel of every type of investing, and with Beta 2 knowing the risks to work within, it will allow us the freedom to yield returns.

Commission and charges

We believe our commission and charges are one of the most competitive you can find in the industry for an advisory service.

0.1% commission of the total contract value on FX trades 0.2% commission of the total contract value on metal trades

There are also rollover charges for holding your positions open. These can either be a debit or credit depending on the differing interest rates of the currency pair.

For a more in depth explanation please refer to your customer agreement forms.

It’s not whether you’re right or wrong that’s important, but how much money you make when you’re right and how much you lose when you’re wrong.

George Soros

Market Outlook for 2013/14 and Beyond

Low inflationary pressures and disappointing growth have laid the foundation for loose monetary policy. As we enter the second half of the year, the market appears to be braced with the uncertainty regarding US tapering its asset purchases and the fear surrounding what the market climate will look like without its regular dose of QE.

Nevertheless, slowing the pace of bond purchases (QE) is not the same as tightening policy; therefore we expect the rebalancing of the global economy from the developing world to gather pace as investors, still on the hunt for yields will be using currency markets as a tool to capitalise on.

In the near-term, we expect broad FX moves to be data dependent. Beyond that we expect the movements in the FX arena to reflect the outcome of central bank policies and growth outlook.

Beta 2 – ‘The Future’

The team at Beta 2 are very ambitious, and 3-5 years from now we would envisage operating in the fund management market as well as offering the advisory trading service we currently offer.

With slight amendments to our regulatory permissions, the potential launch of 3 funds (low risk, medium risk, absolute return) on a listed exchange would allow us to adopt the trading methodology we employ for our ‘advisory business’ into a ‘fund product’ that could potentially challenge some of the more established Investment Houses.

Therefore, by concentrating in our area of expertise we could extend our offerings to include the bespoke advisory trading service, as well as working with the Institutional market place with our fund offerings.

In the interim period, we will continue to work as diligently and effectively as we do currently, and continue to build solid relationships with our clientele and partners.

As an organisation we are always interested in feedback, and ways that we could possibly improve the business, so please feel free to contact any member of our team, if you do have any suggestions.

Contact us

Beta 2 The Broadgate Tower Floor 12 20 Primrose Street London EC2A 2EW

For more information, contact our client acquisitions department on 020 7870 9600 or alternatively email us on [email protected]

Regulations and financial controls

Beta 2 Ltd are authorised and regulated by the Financial Conduct Authority to conduct business in the United Kingdom.

For more information visit the FCA website www.fca.gov/register and enter the company’s reference number 529092 or type in Beta 2 into the ‘search by name’ for further details.

Leveraged products carry a high level of risk to your capital and you should only deal with money you can afford to lose. The value of investments can fall as well as rise and you may lose significantly more than your initial margin payment. Please note that leveraged products are high risk and can result in losses that exceed your initial deposit. They may not be suitable for everyone, so please ensure that you fully understand the risks involved.

If you know the enemy and know yourself you need not fear the results

of a hundred battles.

Sun Tzu

Investment Boutique

BETA 2 BROCHURE

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