Pictet

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Laurent Nguyen

Pictet Asset Management

November 2012

Pictet-Quality Global Equities

A dispassionate quantitative approach

FOR PROFESSIONAL INVESTORS ONLY

Introduction to Pictet Asset

Management

1

3Pictet-Quality Global Equities For professional investors onlyPictet Asset Management

Total Return

Equities

0.4%

Quantitative

20.6%

Balanced

7.2%

Bonds

26.8%

Equities

22.0%

MMF/Short-term

Bonds

23.0%

Brief introduction to Pictet Asset Management

• First institutional mandate in 1967

• A worldwide presence with:

– 5 investment management centres (London, Geneva,

Zurich, Tokyo & Singapore)

– 17 marketing & client relationship management centres

• More than 600 professionals at Pictet Asset Management

Source: Pictet Asset Management, as of 31.08.2012

Assets under management: EUR 109.6 bn

Performance

Client service

Integrity


3 long-term strategic axes across three investment styles

GREATER EUROPE

EMERGING WORLD

GLOBAL SPECIALTIES

Long Only Long / Short Quantitative

While global in reach, we remain focused in what we do


3 major mid-term convictions

• Persisting macro risk & volatility - ultimately global currency re-alignment

- Low volatility / high income strategies in demand

- Emerging debt and EM-FX will outperform

- RMB as trade and reserve currency

• Securitization 2.0 beginning

- Corporate credit as a new major asset class in Europe and EM

• Paradigm shift in benchmarking

- Cap-weights out, fundamentals in

- Quality equities and emerging debt to benefit


Quality Global Equities

GREATER EUROPE

EMERGING WORLD

GLOBAL SPECIALTIESQuality GlobalEquities

Long Only Long / Short Quantitative

Combining long term strategic views with mid-term convictions


Why those long-term axes?

• Strong home advantage in research and decision making

• Domestic asset classes of many PAM clients

Greater Europe

Our World

• Secular rise of EM countries

• Synergies across EM specialties: global/regional, debt/equities

Emerging World

Tomorrow’s world

Global Specialties

Tomorrow’s realities

• Secular rise of global solutions – eg: thematic, fundamental indices

• PAM’s strengths in select areas: e.g. environment, quants, global macro


Pictet Asset Management – What sets us apart

AN INVESTMENT LED SERVICE COMPANY

THE SERVICE PROVIDER

� Strong brand image: recognized for quality of service

� Transparent fees, adapted to market conditions

� Dedicated support for our distribution “partners”

THE COMPANYTHE COMPANY

� A solid group focused on asset and wealth management

� Sound financial situation for Pictet and for PAM

� ‘Human management of resources’

THE ASSET MANAGER THE ASSET MANAGER

� Long term perspective: resource, footprint and products

� Strong investment performance vs. competition

� Protection of client interest: anti-dilution, soft closings

The case for Quality Equities

2


COMPANIES WITH

Long-term visionSustainable

growth

Healthy

balance

sheet

Reasonable

valuation

Higher

shareholders’

remuneration

What is Quality Equity?


An opportunity to exploit failures

in common sense

Why Quality Equities?

Profit from behavioural biases

Resilience in

down markets

Long-term

outperformance

Lower-risk approach to equity investing

WH

Y Q

UALIT

Y E

QU

ITIE

S


Belief n°°°°1: High growth leads to higher return

Fact: The lowest growing companies tend to outperform

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

Q1-LOWEST GROWTH Q2 Q3 Q4-HIGHEST GROWTH

In theory

Faster growing companies

are expected to deliver

greater return for

shareholders

In practice

High-growth companies

tend to underperform their

more conservative peers

Note: Annual compounded performance of global equities by assets growth 1991-2011.

Largest 20% global equities. Ranked by total assets growth over 5-year periods.

Equally-weighted portfolios rebalanced twice a year. Total return in USD.

Geometric performance global

equities 1991-2011


Belief n°°°° 2 : Leverage enhances returns

6.0%

7.0%

8.0%

9.0%

Q1-LOWEST LEVERAGE Q2 Q3 Q4-HIGHEST LEVERAGE

Fact: Beyond a certain threshold, financial leverage is detrimental to stock performance

In theory

The higher the leverage, the

higher the expected return

on equity

In practice

Highly indebted companies

tend to underperform their

less leveraged peers

Annual compounded performance of global equities by financial leverage 1991-2011

Note: Largest 20% global equities. Ranked by debt/equity ratio.

Equally-weighted portfolios rebalanced twice a year. Total return in USD.

Geometric performance global

equities 1991-2011


Belief n°°°° 3 : More risk, more reward

Fact: Higher return does not require higher risk

In theory

Equity investors should be

rewarded in direct

proportion to the systematic

risk they are taking

In practice

High-flying companies tend

to underperform their more

defensive peers

800

400

200

75

100

12.1

989

12.1

991

12.1

993

12.1

995

12.1

997

12.1

999

12.2

001

12.2

003

12.2

005

12.2

007

12.2

009

12.2

011

World Index High Beta Low Beta

Equally-weighted portfolios (USD), rebalanced every 6 months

Note: Largest 20% global equities. Ranked by historical beta.

Total return in USD.


Fact: Defensive stocks help in down turns, BUT also outperform over a complete economic cycle

Source: Datastream World Indices, OECD, 1991-2011

Belief n°°°° 3 : More risk, more reward


Quality strategy avoids investor biases

OVERCONFIDENCE

Systematic tendency to

‘buy hope’ and pay a

premium for it

HERDING

Most people feel safer

doing what everyone else is

doing

STRUCTURAL CONSTRAINTS

Benchmarking and limits

to leverage induce sub-

optimal behavior


Example: Ahold’s road to Quality

0

5

10

15

20

25

30

35

40

12/30/199206/10/199411/14/199504/29/199710/08/199803/15/200008/23/200101/30/200307/06/200412/01/200505/10/200710/10/200803/17/201008/16/20111993 20122001 2004

Ahold. Share price in EUR

ROAD TO RECOVERYGROWTH BY ACQUISITION CRISIS

An international retailing group based in the Netherlands

NOT A QUALITY

STOCK

NOT A QUALITY

STOCKQUALITY STOCK


AHOLD

Shareholders’

returns

New

Management

Company digests

its growth

Company

deleveraging

Valuation

Debt is paid off

ROE hovers around

25%

2003 to date: Ahold is a new company

Company possesses quality characteristics

P/E falls to 10

Further examples can be found in Appendix 1

Investment process

3

20Pictet-Quality Global Equities For professional investors onlyPictet Asset ManagementPictet Asset Management

Our philosophy

Investors tend to repeat the same errors through time

Our motto :

“This time is NEVER different”

A dispassionate quantitative

process is best suited for

exploiting these systematic

biases, in our view

Low volatility portfolios are a

natural choice when the

empirical risk/return

relationship is non-existent

or negative

Quality companies are

businesses that tend to be

defensive, overlooked and

underpriced

Success is improved by

embedded risk control and

effective cost control.


Two-step portfolio construction

1- Quality screening

To ensure higher expected returns

while avoiding costly investment

mistakes

2- Low volatility portfolio

construction

To reach an optimal trade-off

between attractive returns and

lower volatility while avoiding

illiquidity risk.

RESEARCH

UNIVERSE

~2’800

companies

INVESTABLE UNIVERSE

~1’300 companies

FINAL PORTFOLIO

~200 stocks

Quality ScreeningLow Volatility

Portfolio Construction

Non-quality

Companies

Unfavorable

Risk-return

Characteristics

Simulated portfolio performance and

characteristics

3


Performance simulation

75

100

200

400

80012

.198

9

12.1

990

12.1

991

12.1

992

12.1

993

12.1

994

12.1

995

12.1

996

12.1

997

12.1

998

12.1

999

12.2

000

12.2

001

12.2

002

12.2

003

12.2

004

12.2

005

12.2

006

12.2

007

12.2

008

12.2

009

12.2

010

12.2

011

MSCI World Total Return

Quality Global Equities (simulated)

Portfolio simulated following our Quality investment process on a global equities universe. Portfolio rebalanced every 6 months.

Performance presented gross of all fees (no trading costs are taken into account), total return in USD.

Annual simulated performance is available in appendix 2

Source: PAM, Datastream, MSCI


Simulated Quality Global Equities portfolio

-44.4%

0.76

0.66

5.2%

0.78

12.3%

Simulated portfolio

9.6%

3.0%

2.2%

6.7%

7.7%

Simulated portfolio

-57.3%Max drawdown

Beta6.0%90-12 annualised

Information ratio-1.6%5 years annualised

Tracking Error-0.3%3 years annualised

0.39Sharpe ratio-1.0%1 year

15.4%Volatility p.a.8.0%YTD

MSCI WorldHistorical statisticsMSCI WorldPerformance

Note: Simulation (31.12.1989-30.07.2012) based on a portfolio of Global Equities following the Quality investment process. Portfolio rebalanced every 6 months.

Performance presented gross of all fees (no trading costs are taken into account), in total return USD


Not hedgedCurrency exposure

Typically <50%Turnover

1.0%Maximum position size

around 200Typical number of positions


Pro-forma portfolio exposure

Pro-forma portfolio applying our Quality investment process as of 30.07.2012. Source: PAM, MSCI

Relative market cap breakdown Top 10 holdings by decreasing markets size

-20% -10% 0% 10% 20% 30% 40%

< USD2bn

USD 2bn-10bn

USD 10bn-50bn

USD 50bn-100bn

>USD 100bn

Relative sector breakdown (%)

-12 -10 -8 -6 -4 -2 0 2 4 6 8

Financials

IT

Energy

Materials

Heath Care

Utilities

Industrials

Telecom

Cons. Staples

Cons. Discr.

-8 -6 -4 -2 0 2 4 6 8

US

Canada

UK

Australia

France

Switzerland

Sweden

Germany

Honk Kong

Japan

-0.11%0.61%0.5%PHILIP MORRIS

-0.24%0.74%0.5%PFIZER

-0.25%0.75%0.5%JOHNSON & JOHNSON

-0.25%0.75%0.5%PROCTER & GAMBLE

-0.34%0.84%0.5%NESTLE

-0.38%0.88%0.5%MICROSOFT

-0.41%0.91%0.5%IBM

-0.42%0.92%0.5%CHEVRON

-1.20%1.70%0.5%EXXON MOBIL

-1.95%2.45%0.5%APPLE

ActiveBenchmark Weight

Relative geographical breakdown (%)


Pro-forma Quality Global Equities portfolio

4.9x3.8xDebt / Equity

10.4%5.9%Assets Growth 5Y

2.7%3.1%Dividend Yield

205

14.6

19.8%

0.77

3.7%

13.6%

Pro-forma portfolio

>1600Number of positions

14.7P/E

18.6%Return on Equity

1.00Beta

Ex Ante Tracking Error

17.5%Ex Ante Volatility

MSCI WorldPortfolio characteristics

Pro-forma portfolio applying our Quality investment process as of 30.07.2012. Source: PAM, MSCI


Simulated performance outperforms over most business cycles…

-50%

-25%

0%

25%

50%

75%

100%

125%

150%

175%

200%

225%

Sep 90-Sep 98 Sep 98-Sep 02 Sep 02-Feb 09 Feb 09-Jul 12

MSCI World Simulated Quality Global Equities portfolio in USD+43%

-4%

+29%

+39%

Performance comparison across various business cycles measured trough-to-trough


Performance presented gross of all fees (no trading costs are taken into account), total return in USD



… and during bear markets

The simulated strategy is particularly resilient in crisis environment

-75%

-50%

-25%

0%

Koweit invasion

Jul 90-Sep 90

Asian crisis

Jul 98-Sep98

Dotcom bubble

Mar 00-Sep 02

Financial crisis

Oct 07-Feb 09

EU debt crisis

May 11-Sep 11

MSCI World Simulated Quality Global Equities portfolio in USD

+5% +5%

+30%

+15%

+8%


Performance presented gross of all fees (no trading costs are taken into account), total return in USD



1. Defensive stance

2. Time-varying risk-budget allocation

Quality portfolio adapts to market conditions…

Portfolio BetaQuality World Equities, portfolio beta evolution, based on back test

Portfolio simulated following our Quality investment process on a global equities universe. Portfolio rebalanced every 6 months.Source: Datastream, MSCI, Pictet Asset Management

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

1.1

janv

.90

janv

.91

janv

.92

janv

.93

janv

.94

janv

.95

janv

.96

janv

.97

janv

.98

janv

.99

janv

.00

janv

.01

janv

.02

janv

.03

janv

.04

janv

.05

janv

.06

janv

.07

janv

.08

janv

.09

janv

.10

janv

.11

janv

.12

Beta


… helps you avoid overbought sectors…

Portfolio sector weights

1. Structural overweight on defensive sectors

2. Structural underweight on highly levered financials

3. Anticipates the technology sector correction

-20%

-15%

-10%

-5%

0%

5%

10%

15%

janv

.90

janv

.91

janv

.92

janv

.93

janv

.94

janv

.95

janv

.96

janv

.97

janv

.98

janv

.99

janv

.00

janv

.01

janv

.02

janv

.03

janv

.04

janv

.05

janv

.06

janv

.07

janv

.08

janv

.09

janv

.10

janv

.11

janv

.12

Cons. Staples Utilities IT Financials

Quality World Equities, selected portfolio sector weights, based on back test



… while providing stable and higher returns on equity

Return on Equity (%)

0

5

10

15

20

25

janv.9

0ja

nv.9

1ja

nv.9

2jan

v.93

janv

.94

janv.9

5ja

nv.9

6jan

v.97

janv.9

8ja

nv.9

9jan

v.00

janv.0

1ja

nv.0

2jan

v.03

janv

.04

janv.0

5ja

nv.0

6ja

nv.0

7jan

v.08

janv

.09

janv

.10

janv.1

1ja

nv.1

2

Quality World MSCI World

1. Higher shareholder value creation than the market

2. Stable businesses in time of crisis

ROE comparison with MSCI World’s index, based on back test



Which global equity strategy would you choose?

Same valuation

Higher yield

Better quality

Same valuation

Lower yield

Higher risk

Quality Global EquitiesMSCI World Index

Conclusion

4


Quality equities in a nutshell

1. Strong and stable companies

2. Defensive portfolio

3. Free from most investor biases

4. Attractive returns

“Slow and steady wins the race”

Aesop


Pictet-Quality Global Equities

0.80%0.25%0.50%NoLU0845339554I USD

1.30%0.25%1.00%NoLU0845339638P USD

1.30%0.25%1.00%Yes (yearly)LU0845339711P dy USD

2.00%0.25%1.70%NoLU0845339802R USD

0.16%0.15%Sep. agreementNoLU0845339984Z USD

0.80%0.25%0.50%NoLU0845340057I EUR

1.30%0.25%1.00%NoLU0845340131P EUR

2.00%0.25%1.70%NoLU0845340305R EUR

Sep. agreement

Management

Fees (%)

0.16%

Exp. TER(%)

Z EUR

Share class

LU0845340487

ISIN code

No

Dividend

distribution

Admin &

Custody Fees

0.15%

Source: Pictet Asset Management as at 31 October 2012.

I-Share: min investment USD 1'000'000, or equivalent for EUR share class. Z-Class: Separate management agreement with Pictet Asset Management required

Reinvested or distributedDividend

3 December 2012Launch date

Daily, settlement NAV + 2NAV calculation

USDReference currency

In scope no taxEU saving directive

Compartment of the Pictet Luxembourg SICAV, UCITS compliantLegal status

MSCI WorldReference index

Laurent NguyenFund Manager

Pictet-Quality Global EquitiesName


Team expertise

Defensive

SRI Europe

fundOct

2009

June

201

1 Low volatility

Europe

strategy

Low volatility

US-Japan

strategy

Mar

ch 2

012

Defensive SRI

Emerging Market

fund

Dec

201

2 Launch Quality

Global Equities

fund

EUR 12 mio

seed money

Evolution of team’s expertise and current assets under management

Sept

201

1 Low volatility

Biotech

fund Feb

201

2

Quantitative strategies

Current AuM:

EUR 680 mio

2009


Active Quant investment team

Research Analysts

(3 analysts)

ADDITIONAL INVESTMENT

RESEARCH

Index team

(9 investment professionals)

TRADING & OPERATIONAL

SUPPORT

Laurent Nguyen

Head Active Quants & SRI

3 Quantitative Analysts

Reda Jürg Messikh

Olivier Pictet

Ruxandra Pinata

2 SRI Analysts

Christoph Butz

Nathalie Cerutti

Product Specialist

Habib Nasrallah

ACTIVE QUANTS & SRI TEAM


Active Quant Team

Laurent Nguyen Senior Investment ManagerQuantitative Investment team

Laurent Nguyen joined Pictet Asset Management

in 1998. He is a Senior Investment Manager and

responsible for SRI investments and active quant

in the Quantitative Investment team.

Before joining Pictet, he was a teaching assistant

in the fields of portfolio management and option

theory until 1996. From 1997 to 2007, he was an

instructor at AZEK-The Swiss Training Centre for

Investment Professionals.

Laurent obtained a Master’s degree in Financial

Economics from the University of Geneva.

Olivier Pictet Quantitative Analyst

Quantitative Investment team

Olivier Pictet joined Pictet Asset Management in

2001. He is a quantitative analyst dedicated to

SRI portfolios within the Quantitative Investment

team. He has devoted the past few years to

extensive research and development projects in

the field of applied economics.

He previously worked for Olsen & Associates where

he was one of the main research group members.

He then worked for Dynamic-Asset-Management, a

firm specialized in data analysis and banking

software developments.

Olivier holds a PhD in Physics from the University

of Geneva and has a completed postdoctoral

course on artificial intelligence.

Reda Jürg MessikhQuantitative Investment Analyst


Reda Jürg Messikh joined Pictet Asset

Management in 2007 and is a Quantitative

Investment Analyst for SRI investments in the

Quantitative Investment team.

Prior to his current position, he was Deputy Head

of Risk Control in the Product and Risk

Management team until 2011.

Before joining Pictet, he was a researcher at the

Swiss Federal Institute of Technology (EPFL) in

Lausanne and at EURANDOM in Eindhoven, The

Netherlands.

Reda Jürg graduated with an Engineering degree in

Physics from EPFL. He also holds a PhD in

Mathematics and a MSc in Stochastic Modeling

from the University of Paris (Orsay).


Active Quant Team

Ruxandra Pineta

Graduate Trainee


Ruxandra Pineta joined Pictet Asset Management

in 2011 as a Graduate Trainee responsible for

quantitative analysis in the Quantitative

Investment team.

Before joining Pictet, she held an internship

position during five months with Encelade Capital

SA as a Junior Quantitative Analyst.

Ruxandra holds a degree in Economics and

Finance from the Università degli Studi di Bologna

and an MSc in Finance from the University of

Lausanne.

Habib NasrallahSenior Product Specialist

Quants & Balanced Management - Group

Habib Nasrallah joined Pictet in 2005 and is a

Senior Product Specialist for the Quants &

Balanced Management team. Prior to his current

position, Habib was a Senior Product Specialist for

Core Equities and Index funds.

Before joining Pictet Habib worked eight years as a

sell-side Pan-European Equity analyst for Credit

Suisse First Boston (1997) and Standard and

Poor’s (2001) covering the technology and capital

goods sectors.

Habib graduated from Ecole Centrale Paris in

1991 with a Master in Engineering and a

specialisation in real-time computer sciences, and

holds an MBA degree from the London Business

School since 1997. He is also a CFA

charterholder.

Appendix 1

Examples of quality companies


Innovative company behind

the behind-the-wall toilet flusher

Geberit

Favours organic growth

Innovative products

Lack of credible

competitors

Geberit: Solutions for sanitary technology applications

Prudent management

Pricing power

Steady earnings growth

Rising dividend share

Net cash since going

public in 1999


A quality company, not just

for the quality of its products

TOD’S

Pricing power

Higher returns on equity

Net cash

TOD’S: The hand-crafted shoe maker

Prudent investment

strategy

Shareholder friendly

Steady growth and

diversification

Appendix

Others


Quality indicators performance by sectors

Debt / Equity

Assets Growth

40

60

80

100

120

140

160

31.1

2.19

88

31.1

2.19

90

31.1

2.1

992

31.1

2.19

94

31.1

2.1

996

31.1

2.1

998

31.1

2.20

00

31.1

2.20

02

31.1

2.20

04

31.1

2.20

06

31.1

2.2

008

31.1

2.2

010

Bottom 25% Top 25%

40

60

80

100

120

140

160

31.1

2.19

88

31.1

2.1

990

31.1

2.19

92

31.1

2.1

994

31.1

2.19

96

31.1

2.1

998

31.1

2.20

00

31.1

2.2

002

31.1

2.20

04

31.1

2.2

006

31.1

2.20

08

31.1

2.20

10

Bottom 25% Top 25%

-40% -20% 0% 20% 40% 60% 80%

Utilities

Telecom

Information Technology

Financials

Health Care

Consumer Staples

Consumer Discretionary

Industrials

Materials

Energy

Bottom / Top Spread

-50% 0% 50% 100% 150% 200%

Utilities

Telecom

Information Technology

Financials

Health Care

Consumer Staples

Consumer Discretionary

Industrials

Materials

Energy

Bottom / Top SpreadSource: World index, Datastream, Pictet Asset Management


Investment process: Step 1- Quality screening

RESEARCH

UNIVERSE

~2’800

companies

INVESTABLE UNIVERSE

~1’300 companies

Non-quality

Companies • Rank each company on a set of quality

indicator (asset growth, shareholders’ returns,

balance sheet strengths, etc)

• Company’s final rank is calculated as the

sum of each of its quality indicators’ rank

• Better half of the universe is investable

To score companies according to proprietary indicators


Investment process: Step 2- Low volatility portfolio construction

• A low volatility portfolio construction aiming

at maximising the risk/return profile

– Selection of 150+ stocks for

diversification purposes

– Liquidity constraints

– No country or sector limits

INVESTABLE UNIVERSE

~1’300 companies

FINAL PORTFOLIO

~200 stocks

Unfavorable

risk-return

characteristics

To build a defensive portfolio offering higher return per unit of risk taken


Quality Global Equities- Proforma simulation. Yearly performance since 1990

Yearly performance simulation

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

Proforma Benchmark


Performance presented gross of all fees (no trading costs are taken into account), total return in USD.



For further information, please visit our websites

www.pictet.com

www.pictetfunds.com

Pictet Asset Management

This marketing material is issued by Pictet Funds (Europe) S.A. It is neither directed to, nor intended for distribution or use by, any person or entity who is a citizen or resident of, or domiciled or located

in, any locality, state, country or jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation. Only the latest version of the fund’s prospectus, regulations,

annual and semi-annual reports may be relied upon as the basis for investment decisions. These documents are available on www.pictetfunds.com or at Pictet Funds (Europe) S.A., 15, avenue J. F.

Kennedy L-1855 Luxembourg.

The information and data presented in this document are not to be considered as an offer or solicitation to buy, sell or subscribe to any securities or financial instruments.

Information, opinions and estimates contained in this document reflect a judgment at the original date of publication and are subject to change without notice. Pictet Funds (Europe) S.A. has not taken

any steps to ensure that the securities referred to in this document are suitable for any particular investor and this document is not to be relied upon in substitution for the exercise of independent

judgment. Tax treatment depends on the individual circumstances of each investor and may be subject to change in the future. Before making any investment decision, investors are recommended to

ascertain if this investment is suitable for them in light of their financial knowledge and experience, investment goals and financial situation, or to obtain specific advice from an industry professional.

The value and income of any of the securities or financial instruments mentioned in this document may fall as well as rise and, as a consequence, investors may receive back less than originally invested.

Risk factors are listed in the fund’s prospectus and are not intended to be reproduced in full in this document.

Past performance is not a guarantee or a reliable indicator of future performance. Performance data does not include the commissions and fees charged at the time of subscribing for or redeeming

shares. This marketing material is not intended to be a substitute for the fund’s full documentation or any information which investors should obtain from their financial intermediaries acting in relation

to their investment in the fund or funds mentioned in this document.

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