Indices

The Index is comprised solely of quantitative risk premia strategies provided by major banks. The Index is designed to be primarily focused on strategies that employ income related investment styles, but it also includes other strategies for diversification purposes. The Index has a target annualised volatility of 4-5% and strives to achieve a low correlation to U.S. Treasuries.

Eligible constituents are pre-screened quantitative risk premia strategies managed by large banks with favourable credit ratings and robust offerings of quantitative risk premia strategies. Index constituents are selected primarily on the basis of quantitative framework that reflects the aim of the Index. Certain strategies with limited capacity or which do not pass due diligence screens are eliminated from consideration.

The number of Index constituents may vary over time. The Index includes multiple risk premia indices from multiple bank providers. Each underlying index typically represents more than one risk premia style. The indices are both off-the-shelf and customised for this specific Index (primarily for portfolio construction related purposes).

The Index includes strategies in fixed income, credit, commodities, equity and volatility.

Mentioned below are various sources of risk premia that the Eurekahedge Multi-Factor Risk Premia Index will consider across various asset classes (equities, FX, rates, credit, commodities, multiple). Precise details regarding the allocations across these multiples sources of risk premia, along with the weightings is confidential information maintained by the Index Committee, which is composed of Indexation specialists from Eurekahedge along with risk premia specialists from to Asset Management One USA Inc and Wilshire Associates. For further information, please reach out to [email protected].

Traditional strategies are simple, relatively passive exposures to well-known asset-based risk premia such as stocks, bonds, long-only commodities, etc.

Carry strategies are constructed by holding long positions in higher yielding assets and short-selling lower yielding assets. An example of carry strategy is high-yield credit spread, which are constructed by holding long positions in a high yield bond portfolio (e.g. HYG) while holding short positions in investment grade or Treasury bond.

Value strategies are constructed by holding long positions in undervalued and short positions overvalued assets based on some valuation model. An example would be a portfolio that is long stocks with a low Price-to-Book ratio (P/B) and short stocks with a high P/B ratio. A long-short value portfolio can be made market neutral, and also be neutral on the carry risk (e.g. setting the average dividend yield of high value stocks equal to the average dividend yield of low value stocks).

Momentum strategies are based on technical signals and tend to be long assets whose price recently appreciated, and short assets whose price depreciated. An example of this is trend following, which uses technical indicators such as moving averages to determine whether assets have recently (e.g. 6 months) appreciated or depreciated, and takes long or short positions accordingly.

Volatility strategies seek to earn the premium available between implied volatility and realised volatility in options markets. These can be implemented by systematically selling delta-hedged straddle options to capture the volatility premium. Where available, shorting variance swaps also provides another way to access this premium.

Liquidity strategies focus on temporary and/or excessive investment flows into a particular asset due to a demand/supply imbalance. A basic construct would be a long position in low liquidity (or over-supplied) assets and a short position in high liquidity assets.

Multiple strategies combine the above styles to achieve particular investment objectives. For example, volatility and momentum strategies tend to be negatively correlated, so combining them can create return streams more consistent with less volatility than either style alone.

The Index is calculated based on the most recent prices of swaps as provided by the banks and independently verified from public data sources.

The Index is rebalanced on a semi-annual basis. Constituents may be added or removed annually.

The Index is net of hypothetical fees and expenses. The calculation includes an assumption for hypothetical trading costs and general expenses that would be typically associated with the trading of the portfolio of risk premia swaps represented in the Index.

Business days: Any day that is defined as a business day according to both the New York Stock Exchange (NYSE) calendar and the London Stock Exchange (LSE) calendar.

Frequency of Index Publication: The Index is calculated and published on each Business Day

The Index is currently utilised by institutional investors and fund managers to benchmark their risk premia portfolios.