WEEKLY REPORT

Markets Research
SPOTLIGHT Jan 14th Jan 18th

Euro confidence despite German data

In the Eurozone, the German statistical office revealed a weak GDP growth of 0.7% in 2012 (0.8% estimated), consistent with a contraction of more than 1% in the final quarter of last year, to the weakest performance in 3 years. For this year, the German government predicts growth of 0.4%. Nevertheless, these signs are being overlooked as most European equity indexes rose for the week after the IMF board agreed to pay the next aid tranche to Athens. Yields of government bonds of countries in the periphery, namely Portugal, Spain and Italy have decreased this week.

CHINA GDP ANNUAL GROWTH RATE

9,7%

9,1%

9,1%

8,9% 8,1% 7,6% 7,4%

Q3/2012 Q4/2012

7,9%

Q1/2011

Q2/2011

Q3/2011

Q4/2011

Q1/2012

Q2/2012

FEP Finance Club; tradingeconomics.com

Indexes Performance
Jan 14
PSI 20 CAC 40 DAX 30 FTSE 100 S&P 500 6.160,54 3.708,25 7.729,52 6.107,86 1.470,68

Jan 15
6.130,45 3.697,35 7.675,91 6.117,31 1.472,34

Jan 16
6.111,28 3.708,49 7.691,13 6.103,98 1.472,63 3.117,54

Jan 17
6.218,07 3.744,11 7.735,46 6.132,36 1.480,94 3.136,00

Jan 18
6.254,82 3.741,58 7.702,23 6.154,41 1.485,98 3.134,71

Wkly Chg % 1,70% 0,96% -0,17% 0,54% 1,03% 0,95% 0,29%

USA up on mixed economic data

In the US, Retail sales rose more than expected in December as Americans shrugged off the threat of higher taxes, suggesting momentum in consumer spending as the year ended. The release of fourth quarter results from major U.S. banks also contributed to this environment of decreased risk aversion, which drove the S&P 500 o 5-year highs. This data contrasted with the drop of business activity index in Philadelphia, which fell to -5.8% from 4.6% the month before. Also, U.S. consumer sentiment deteriorated for a second straight month to hit its lowest in over a year in January.

NIKKEI 225 CLOSED 10.879,08 10.600,44 10.609,67 10.913,30 NASDAQ 3.117,50 3.110,78 FEP Finance Club; Google Finance

Commodities Energy & Metals

2,25% 7,30% 1,06%

Crude Oil WTI Natural Gas Crude Oil Brent

1,31% 4,65% 0,46%

Gold Silver Copper

Asia up on Chinas growth

FEP Finance Club; Forexpros

Reference Rates
Jan 14
Euribor 1M Euribor 3M Euribor 6M Euribor 12M Eonia 0.112% 0.199% 0.337% 0.566% 0.065%

While China's gross domestic product (GDP) growth accelerated by a faster-than-expected 7.9 percent in the fourth quarter, analysts are questioning the sustainability of this uptick in economic activity.

Jan 15
0.112% 0.202% 0.341% 0.570% 0.064%

Jan 16
0.111% 0.201% 0.340% 0.570% 0.067%

Jan 17
0.112% 0.204% 0.344% 0.574% 0.068%

Jan 18
0.112% 0.209% 0.351% 0.587% 0.068%

Oil & Gas set to outperform

These commodities are in focus this week, as oil was supported by Chinese growth and after news that the US House of Representatives will consider a bill to raise the debt ceiling. Oil was further supported by this week's Islamic militant raid on a gas plant in Algeria. Nat gas prices gained in wake of government reports revealing inventories fell more than expected last week. Forecasts for lower temperatures to settle in across much of the US pushed up prices as well. Natural gas futures are very sensitive to weather reports in the winter as about half of households use gas for heating purposes.

FEP Finance Club; BPI

Currencies
Jan 14
EUR/USD EUR/JPY EUR/GBP EUR/YUAN 1,338 119,670 0,832 8,321

Jan 15
1,331 118,140 0,828 8,268

Jan 16
1,329 117,800 0,831 8,262

Jan 17
1,337 120,120 0,837 8,317

Jan 18
1,332 119,910 0,839 8,279

Wkly Chg %
-0,21% 0,76% 2,14% -0,17%

FEP Finance Club; Forexpros

Forecasts for lower temperatures Page 1/2 in across to settle Financial Markets | fepfinanceclub@gmail.com| www.facebook.com/FEPFinanceClub much of the U.S. pushed up prices as well.

WEEKLY REPORT
Portfolio Management
Portfolio Markowitz vs S&P 500
Markowitz S&P 500

Jan 14th Jan 18th

Markowitz Rectify Gains

This week our portfolio recorded a negative absolute performance (-0.2%) and ended up underperforming the benchmark (+0.6%). S&P 500 is reaching 5-year highs following the Cliff deal and on good economic data. Preventing bigger gains in the US markets and endangering global economic performance is the uncertainty about the debt ceiling. We expect this to have a large impact on returns worldwide. Despite our negative results this week we are still recording gains for the whole period and are outperforming the benchmark.

108% 102%

18-Out 30-Out 12-Nov 23-Nov 06-Dec 19-Dec 01-Jan 14-Jan

Asset Contribution to Markowitz

Rf GTIP AFK SPY -1,5% -1,0% -0,5% 0,0% 0,5%

Risk-Free Asset: Risky

Our greater returns came with a price: Higher volatility. In the last three weeks Markowitz portfolio recorded a 33% standard deviation whilst S&P 500 recorded 14%. The main contributor to our riskreturn equilibrium is the German Bonds (risk-free asset) performance. Markowitz optimization process (considering historical returns) requires a big short position on this asset which in the last three weeks is showing a highly erratic behavior volatility was 35% in that period. This week, German two-year bond yields retreated from near 10-month highs on Friday after an ECB board member cooled some of the market's fears over early bank repayments of longterm central bank loans.

Value Investment Strategy

Value S&P 500

107%
105%

Value Underperforms For No Reason?

03-Dec 05-Dec 07-Dec 11-Dec 13-Dec 17-Dec 19-Dec 21-Dec 25-Dec 27-Dec 31-Dec 02-Jan 04-Jan 08-Jan 10-Jan 14-Jan 29-Nov 16-Jan

Asset Contribution to Value Strategy

IRDM URS ALL ZOLT CYS -6% -4% -2% 0% 2%

This week our portfolio recorded a 0.5% loss, which means it underperformed the benchmark. As far as we can understand, in the absence of main events or news one would expect the assets of the portfolio to have a rather regular performance. Iridium Communications (IRDM) had a huge fall and is the major responsible for our loss. The company was upgraded in the beginning of the week and a couple of good news was released later. As we report our performance on Thursday we now know that the stock amended on Friday with a 3% gain. We are aware that a less diversified portfolio is exposed to higher volatility. Nevertheless, Sharp Ratio on Value portfolio is higher than the benchmarks. Page 2/2

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