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For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
Focus on consistent and reliable absolute returns through a diversified blend of investment insights, implemented in a systematic way
For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved 3
Fund Offerings
London March 2002
Global Market Neutral Global Mid Horizon Global Emerging Markets Asia Europe
Tokyo May 2001
Americas
Approx. $18.4bn gross exposure in Equity Market Neutral Worldwide* $2.4bn gross exposure in SAE BlackRock Strategic Funds (BSF) *
*As at 31st December 2012. The funds gross exposure is given as: (long equity exposure + short equity exposure). For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
Focus on consistent and reliable outperformance through a unique blend of investment insights
Investors gain access to diversification across time horizon, market capitalisation and region Fundamental models exploit investment opportunities over a 1-12 month horizon Statistical model captures investment opportunities over horizons of less than 1 month Regional diversification from broader Americas exposure US ,Canada & Latin America
Leverages the full resources of BlackRock and utilises the Scientific Active Equity Hedge Fund platform Fund launched 17th February 2012 and is up 7.1% net per annum since inception*
* Performance of the A USD share class which is net of fees from 17th Feb 2012 31st March 2013. For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
Raffaele Savi
Head of Portfolio Management, Developed markets
Research
As at 31st March 2013 For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
Source BlackRock: Illustration only For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
Return forecasting
Derived from scoring and ranking stocks against a unique blend of investment insights or signals
Return
Risk forecasting
Enables the construction of highly diversified portfolios with limited exposure to common factor risks (e.g. country/Industry). Leaves stock selection position sizing to be driven by the trade off between forecasts of return and specific (idiosyncratic) risk
Cost forecasting
Forecast, measure and compare expected cost against forecast return. Up to date forecasts of fixed costs, liquidity, volatility and short borrow
Risk
Cost
Source: BlackRock For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
Investment process
Forecasting returns across a 3,500 stock universe
Fundamental
Relative Value Quality Sentiment Themes Stat Arbitrage
Statistical
Trending Events Flow
Canada Portfolio
Portfolio construction
Risk forecasting & cost forecasting
Fund framework consistent with other SAE hedge funds
Fundamental insights used across a number of portfolios that are split regionally and across the cap spectrum in the US Separate mid-horizon portfolio for faster burn signals
BSF ADEAR also benefits from SAEs emphasis on portfolio construction, risk management and transaction cost forecasting
Source: BlackRock For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
Relative value
Quality
Sentiment
Themes
US Mid Horizon
Statistical
Neutral
Trending
Underperform
Events
Flow
Source: BlackRock For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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Largest number of publicly traded companies, with deepest most liquid shares Moderate exposure to global macro trends. Greater focus on domestic economy Strong regulatory environment resulting in best disclosure and more robust information rich market in the world Opportunity exists to trade over-reaction to price sensitive information Utilise information across asset classes to exploit longer term trends Non obvious momentum effects exist at the micro level
Fragmented market structure Light regulatory environment Market slow to price in information pertaining to future earnings expectations Strong momentum effects exist over longer horizons
Source: BlackRock For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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Source: BlackRock SAE research - Backtest results. 1/7/2007 31/12/2012 For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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350,000,000 daily tweets, many with content useful to investors Thousands of company reports, regulatory filings, earning calls
Today the data we have available to make predictions has grown almost unimaginably large: it represents 2.5 quintillion bytes of data each day, enough zeros and ones to fill a billion books of 10 million pages each. Nate Silver, author of The Signal & the Noise
For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
Source: NYSE. For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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Median Average Daily Volume of $3.9m across Latin America universe Benefits of a scientific approach in Emerging Markets Few managers employ a scientific approach
Strong focus on risk management BSF ADEAR leverages experience of SAE investing in Emerging Markets 6-year track record of producing alpha in Emerging Asia market neutral* Priority access to sell-side resources Experience of working to source short availability in Emerging Markets
Source BlackRock.. The graph shows the information ratio achieved by an analyst revisions signal in a BlackRock research environment over 0-6 months.
For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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Resource centric market (>60% of Market Cap) Exposure to Emerging Markets/China Growth and Developed Market Economic cycles Company valuations are driven by physical assets oil reserves, ore resources, grades Skill in finding resource assets is valuable and gets a premium Momentum effects are dominant as there is typically under-reaction to initial discoveries of resources
Source BlackRock.. Cumulative returns Jan 2000 Dec 2010. Cumulative average monthly performance of between 6 and 35 Serial entrepreneur companies identified by Blackrock For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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Tactically allocating between fundamental and mid horizon strategies offers opportunities in alpha generation and risk management
Daily correlations Large Cap Small Cap Mid Horizon Canada Latin America
Small Cap
Mid Horizon
Canada
Latin America
Source: BlackRock. Daily returns from sub-strategy performance gross of fees from 1st April 2012 to 31st March 2013.
For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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Performance
Attribution February 2012 to December 2012* 12 month daily correlation - BSF ADEAR vs. S&P 500 Index**
*Source BlackRock Fund returns are net of fees and represent an investment in the $A2 share class of the fund . Q1 is from 17th February 2012. **Source: BlackRock & DataStream. Gross returns from ADEAR inception 1st April 2012 to 31st March 2013. For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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Appendix
For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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ADEAR Mar 2013 Feb 2013 Jan 2013 Q1 2013 2012 Q4 2012 Q3 2012 Q2 2012 Q1 2012 Since inception cumulative Since inception p.a. Risk since inception Sharpe ratio p.a. since inception -0.96% -1.81% 0.68% -2.09% 10.27% 3.84% 2.39% -0.57% 4.31% 7.97% 7.11% 5.61% 1.3
US Large Cap -2.21% -4.12% 0.79% -5.49% 11.20% 7.19% 1.17% -1.55% 4.15% 5.09% 4.55% 9.49% 0.5
US Small Cap 0.06% -2.36% -0.48% -2.77% 10.86% 4.75% 3.25% -1.38% 3.93% 7.79% 6.95% 8.41% 0.8
US Mid Horizon -2.17% -2.64% 3.50% -1.42% 12.62% 11.05% 1.00% -5.99% 6.81% 11.02% 9.81% 11.02% 0.9
Canada -0.24% -1.77% -0.21% -2.22% 16.93% -3.86% 9.15% 3.33% 7.83% 14.34% 12.75% 10.97% 1.2
Latin America -0.65% 1.88% 1.19% 2.42% 19.45% 2.71% -1.53% 12.35% 5.13% 22.34% 19.79% 7.32% 2.7
Source: BlackRock. ADEAR inception 17th February 2012. Net returns based on an investment in the A USD share class. Sub strategy returns are gross. Q1 12 returns are from inception.
For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
21
Source: BlackRock. Assumes the same holding profile as in the fund as at the 27h November 2012. We assume that 25% of the ADV in a stock can be used without incurring any abnormal transaction costs.
For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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BSF EDEAR (Fund) EOS (Fund) European Mid Horizon (Fund) European Small Cap (Fund) European Large Cap (Fund)
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
BSF ADEAR (Fund) US Mid Horizon (Strategy) Emerging Markets (Strategy) Canada (Strategy) US Large Cap (Strategy) US Small Cap (Strategy)
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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Product details
Product details Base currency Hurdle Liquidity Cut off Pricing Administrator/Custodian Main CFD trading counterparties Initial fee Annual management fee Performance fee Hurdle High water mark Bloomberg Ticker A Share Class Bloomberg Ticker D Share Class Portfolio characteristics Forecast return (net) Forecast volatility Gross exposure vs NAV Net exposure vs NAV Forecast Beta Number of long positions Number of short positions Largest individual stock position vs NAV Largest industry position vs NAV Largest country position vs NAV
Source: BlackRock For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
USD 3 Month USD LIBOR Daily 12 pm CET 4 pm CET State Street (Luxembourg) Morgan Stanley, Goldman Sachs, BoAML Up to 5% 1.50% 20% Yes Yes BSADA2U LX/BSADA2E LX BSADD2E LX
12.5% 10% 200% - 600% 0% 0 1,000 1,500 1,000 1,500 </> +/- 5% </> +/- 5% </> +/- 5%
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% 2013 2012
Jan 0.68
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
YTD -2.09
2.04
-1.20
-1.37
0.88
1.19
0.30
0.13
3.69
0.00
10.27
Source: BlackRock. ADEAR inception 17th February 2012. Net returns based on an investment in the A USD share class. Sub strategy returns are gross. For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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32 Capital 0.27
GAO 0.24
EMA 0.04
PAO 0.01
Source: BlackRock. Correlation are based on daily gross returns from 01/03/2012 to 28/02/2013 of ADEAR portfolio and other SAE hedge funds. Funds are European Diversified Equity Absolute Return, 32 Capital Ltd, Global Alpha Opportunities, Emerging Markets Alpha And Pan Asia opportunities. For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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Source: BlackRock. Performance in USD to 28th Feb 2013. Past performance is not indicative of future results. Returns are based on similar strategies employed in an unlevered onshore US vehicle. The BSF ADEAR Fund will be subject to different dealing terms, fees and charges and will employ leverage that may affect performance and exposures. Returns are before management and performance fees. US Large Cap stock selection is employed within broader global strategies as part of the same onshore US vehicle from December 2009. Emerging Markets is a global strategy, not just Latin America.
Gross returns of other strategies managed using the same investment process reflect capabilities of ADEAR investment team
For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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Quality
We assess the sustainability of company performance by identifying:
Companies which will continue to produce consistent earnings and cash flows Corporate finance decisions which are likely to benefit shareholders Companies with superior operational and capital efficiencies
Sentiment
We interpret market data to select stocks where:
Sell-side analysts believe the stock will outperform Other assets classes or other equity market investors have a favourable view of the stock Information from the supply chain or company earnings calls point to positive momentum for the stock
Themes
We look to exploit temporary market environments or lead-lag relationships:
Non-obvious momentum effects M&A activity
Source: BlackRock For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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Trending
We identify trends that we expect to persist:
Analysts have an improving view of the company Exploit the lead-lag effect between linked companies Data from other financial markets can give an idea for the companys equity price
Events
Exploiting patterns in stock returns around key company events:
Insider deals Earnings announcements
Flow
We identify and exploit information and trade flow trends from:
The shorting activity of hedge funds Segmenting market volume by investor type
Source: BlackRock For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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A stocks common factor risks help minimize unintended bets size, industry, etc. here, the stock provides needed size exposure vs. benchmark
Alpha
Specific risk
Common risk
T-cost impact
Target position
Current position
Trade
Proprietary risk and transaction cost models ensure that expected risk, cost and return are balanced in an optimal fashion Portfolio optimization simultaneously trades off all stocks in the investible universe (3,500 stocks) Optimal portfolio has the highest possible forecast return (post transaction costs), given risk target of 10%
Source: BlackRock For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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Disclaimer
The fund invests a large portion of assets which are denominated in other currencies; hence changes in the relevant exchange rate will affect the value of the investment. The Fund may be exposed to finance sector companies, as a service provider or as counterparty for financial contracts. Liquidity in the financial markets has been severely restricted, causing a number of firms to withdrawn from the market, or in some extreme cases, becoming insolvent. This may have an adverse affect on the activities of the fund. The strategies utilised by the Fund involve the use of derivatives to facilitate certain investment management techniques including the establishment of both 'long' and 'synthetic short' positions and creation of market leverage for the purposes of increasing the economic exposure of a Fund beyond the value of its net assets. The use of derivatives in this manner may have the effect of increasing the overall risk profile of the Funds. Investors in this fund should understand that the Fund is not guaranteed to produce a positive return and as an absolute return product, performance may not move in line with general stock market trends as both positive and negative share movements affect the overall value of the fund. The Manager employs a risk management process to oversee and manage derivative exposure within the Fund. Past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. Unless indicated the fund information displayed only provides summary information. Investment should be made on the basis of the relevant booklet together with the Prospectus, the Simplified Prospectus and relevant application forms which are available on request from the Manager. Please note that BlackRock will not make these documents available to investors in certain jurisdictions where the funds are not authorised for sale, except where local marketing laws otherwise permit. BlackRock Strategic Funds (BSF) is an open-ended investment company established in Luxembourg which is available for sale in certain jurisdictions only. BSF is not available for sale in the US or to US persons. Product information concerning BSF should not be published in the US It is recognised under Section 264 of the Financial Services and Markets Act 2000. BlackRock Investment Management (UK) Limited is the UK distributor of BSF. Most of the protections provided by the UK regulatory system, and the compensation under the Financial Services Compensation Scheme, will not be available. A limited range of BSF sub-funds have a distributor status A sterling share class that seeks to comply with UK Distributor Status requirements. Subscriptions in BSF are valid only if made on the basis of the current Prospectus, the most recent financial reports and the Simplified Prospectus which are available on our website. Prospectuses, Simplified Prospectuses and application forms may not be available to investors in certain jurisdictions where the Fund in question has not been authorised. Issued by BlackRock Investment Management (UK) Limited (authorised and regulated by the Financial Services Authority). Registered office: Drapers Gardens, 12 Throgmorton Avenue, London EC2N 2DL. Registered in England No. 2020394. Tel: 020 7743 3000. For your protection, telephone calls are usually recorded. BlackRock is a trading name of BlackRock Investment Management (UK) Limited. Issued in Switzerland by the representative office, BlackRock Investment Management (UK) Limited (London), Zurich Branch, Claridenstrasse 25, Postfach 2118 CH-8022 Zrich from where the Companys Prospectus, Simplified Prospectus, Articles of Association, Annual Report and Interim Report are available free of charge. Paying Agent in Switzerland is JPMorgan Chase Bank, National Association, Columbus, Zurich Branch Switzerland, Dreiknigstrasse 21, CH-8002 Zurich. For further information, the prospectus, simplified prospectuses, annual report and semi-annual report can be obtained free of charge in hardcopy form from the Austrian paying agent: Raiffeisen Zentralbank sterreich AG, A-1030 Vienna, Am Stadtpark 9. BSF has been registered on the official list of the Financial Supervision Commission (Komisja Nadzoru Finansowego) for distribution in Poland. Issued in Poland by the representative office BlackRock Investment Management (UK) Limited Oddzia w Polsce, Rondo ONZ 1, 00-124 Warszawa. Paying agent in Poland is Bank Handlowy w Warszawie SA, ul. Senatorska 16, 00-950 Warsaw, Poland. In Singapore, this material is issued by BlackRock Investment Management (Singapore) Limited (registration number: 198905382Z). This material may only be distributed to institutional investors (as defined in section 4A of the Securities and Futures Act, Chapter 289 of Singapore (the SFA) and accredited investors (as defined in section 4A of the SFA) and not to the retail public in Singapore. This material is for information purposes only and does not constitute an offer of shares in any of the BlackRock Strategic Funds. You should consider carefully whether the investment is suitable for you. Any opinions contained herein, which reflect our judgment at this date, are subject to change.
For use with institutional and professional investors only proprietary and confidential Scientific Active Equity 2013 BlackRock, Inc. All rights reserved
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