Fusion Structured Portfolio

USD Short Term

June 2019 Series

Portfolio Report
3 June 2019

Powered by For Professional Advisers

 Fusion Structured Portfolio USD Short Term: June 2019

Expected Average
Coupon 6.7% p.a. 8.9% p.a. 1y
Return Duration

FUSION STRUCTURED PORTFOLIOS Portfolio Exposures

Fusion Structured Portfolios combine several carefully
selected Structured Products targeting high yield on Commodity, Credit IG Europe,
10% 12.50%
the investment with an emphasis on capital
preservation.
Credit HY
Most of the Structured Products inside the portfolios Europe,
are chosen to be either capital protected or to have 12.50%
very low risk of capital loss and at the same time to Global
provide high coupon or capital appreciation on the Equity, 25%
investment.
MARKET OVERVIEW
There are several reasons to be defensive for the rest Credit IG North
of 2019. The first argument is related to the pause in America,
Fed rates hikes which usually precedes 12.50%
outperformance of defence assets. The second piece
Interest Rates US, Credit HY North
of worrying news is delivered by Leading Economic America, 12.50%
15%
Indicators which are signalling rising recession risks.
The third indicator is increasing geo-political risk, due
to trade wars and tension with Iran, which can serve PORTFOLIO SUMMARY
as a catalyst for increased growth concerns and resets We believe that in the current market cycle allocations
investors’ risk awareness. While timing of the to various asset classes within a short term portfolio
developments is uncertain and there are many factors need to be on the defensive side and should roughly
in play, we are inclined to implement a defensive correspond to 65/25/10 split between fixed income,
stance and position portfolios for performance in the equity and commodity products.
absence of rallying markets.
The fixed income exposure of various Structured
Products within the portfolio is further diversified
Allocation By Issuer Moody’s between Corporate Credit across a wide range of
investment grade and sub-investment grade entities,
BBVA A3 25% both European and North American, and Government
Interest Rates.
Societe Generale CIB A1 25%
All products are issued by quality providers with credit
rating not lower than Moody’s A3 and the credit
EFG International A3 15%
exposure is well diversified across several of the issuers.
Raiffeisen Switzerland A3 15%
Capital Protection across Products
Citi (CGMH Inc.) A3 10%
100% Capital Guaranteed 20%
Deutsche Bank AG A3 5%
Very safe on Capital 50%
Credit Agricole CIB A1 5% 50% maximum expected loss in the
30%
most extreme scenario
Scenarios
Rally Stable Mid Stress 2008-type stress
Coupon (p.a.) 6.7% 6.7% 4.4% 3.25%
Expected Return (p.a.) 10.2% 8.9% 7.6% -1.3%
Rally scenario – 20% growth in equity
Mid Stress – 20% decline in equity
2008-type stress – 50% decline in Equity

Powered by For more Scenarios details see page 6 2

 Fusion Structured Portfolio USD Short Term: June 2019

PORTFOLIO COMPONENTS

Product Weight Coupon Expected Expected

p.a. Return Duration
p.a.
Citi Tranched Credit Linked Note on iTraxx Main 5y
12.5% 8.59% 9.59% 6m

BBVA Tranched Credit Linked Note on CDX IG 5y

12.5% 7.08% 8.08% 6m
CREDIT
50% Citi Tranched Credit Linked Note on iTraxx Crossover 5y
12.5% 8.86% 9.86% 6m
BBVA Tranched Credit Linked Note on CDX High Yield
5y 12.5% 8.70% 9.70% 6m

Raiffeisen Boosted Tracker on Equity Indices 1y6m

10% 0% 10% 1y 6m
EQUITIES
25% Citi Dispersion Note on US Equity 1y
15% 0% 5% 1y
EFG Range Accrual on US Rates Spread 3y
INTEREST 10% 4.5% 4.5% 3y
RATES
Deutsche Autocallable on US Rates Spread 2y
15% 5% 10% 10% 6m
EFG Accelerated Tracker Autocallable on Brent 1y 5% 16% 16% 6m
COMMODITY
10% Credit Agricole Autocallable on Renewables 1y
5% 15.5% 15.5% 6m

Average 6.7% 8.9% 1y

Expected
Protection Notional Payoff in Duration
Stress
BONUS Issued by Citi, 90/80 1 year Put Spread
WARRANT on S&P500 100% 5% 1y

Powered by 3
 Fusion Structured Portfolio USD Short Term: June 2019
Description of Components
CREDIT
Citi Tranched Credit Linked Note on iTraxx Main 5y
The performance of the note is linked to the number of
Credit Events amongst the 125 corporates from the last
series of iTraxx Europe (Main) 5y Index. The Note pays
8.59% Coupon per annum. In case the number of entities
impacted by a Credit Event amongst the companies
within the chosen index series is 3 or higher, the
investment amount will decrease by 20% per each
impacted entity.
BBVA Tranched Credit Linked Note on CDX IG 5y
The performance of the note is linked to the number of
Credit Events amongst the 125 corporates from the last
series of CDX IG 5y Index. The Note pays 7.08% Coupon
per annum. In case the number of entities impacted by a
Credit Event amongst the companies within the chosen
index series is 5 or higher, the investment amount will
decrease by 25% per each impacted entity.
Citi Tranched Credit Linked Note on iTraxx Crossover 5y
The performance of the note is linked to the number of
Credit Events amongst the 75 corporates from the last
series of iTraxx Crossover (HY) 5y Index. The Note pays
8.86% Coupon per annum. In case the number of entities
impacted by a Credit Event amongst the companies
within the chosen index series is 10 or higher, the
investment amount will decrease by 10% per each
impacted entity.
BBVA Tranched Credit Linked Note on CDX High Yield 5y
The performance of the note is linked to the number of
Credit Events amongst the 100 corporates from the last
series of CDX HY 5y Index. The Note pays 8.7% Coupon
per annum. In case the number of entities impacted by a
Credit Event amongst the companies within the chosen
index series is 21 or higher, the investment amount will
decrease by 20% per each impacted entity.
EQUITIES
Raiffeisen Boosted Tracker on Equity Indices 1y6m
The underlying on the Note is the worst of the
performances of the three major equity indices:
EuroStoxx 50, Swiss Market Index and S&P 500. The
participation in the underlying performance is 150% on
the upside and 100% on the downside. The breakeven is
at around 90% of the worst performing market. Above
this level there is more than 100% capital repayment at
maturity.
Citi Dispersion Note on US Equity 1y
The Note is capital protected and its performance
depends on the dispersion of the performance in 15
major US equities. The capital appreciation is given by the
difference between the level of dispersion and 27% if
positive. Historically the performance was on average
around 10% in the last 10 years. Very high performance
of around 40% is expected in market stress when large
movements in equity prices result in much higher
deviations for individual stocks performances from the
average.
Powered by
INTEREST RATES
EFG Range Accrual on US Rates Spread 3y
The performance of the Range Accrual note is linked on
the spread between 30 years and 2 years USD CMS rates.
The note is capital guaranteed and pays out a coupon
which is calculated as 4.5% multiplied by a proportion of
days during the lifetime of the note when the Spread
fixes above 0%. The note will return 4.5% in stable
market and the coupon will reduce in significant market
stress scenarios.
Deutsche Autocallable on US Rates Spread 2y
The performance of the note is linked to the spread
between 10 years and 2 years USD CMS rates. The note is
redeemed early if on any of the observation dates (semi-
annually) the Spread fixes above 0.5%. 10% coupon per
annum is paid on early redemption. In case there was no
early redemption 100% is paid at maturity if the Spread is
above -0.25%, otherwise the capital repayment is
reduced by 1% for every 0.01% the spread at maturity.
COMMODITIES
EFG Accelerated Tracker Autocallable on Brent 1y
The Tracker is 100% redeemed with 16% p.a. coupon if the
oil price is above 95% of the current price in 6 months time.
If the note is not called in 6 months, it will repay the capital
and twice the appreciation in the oil price at maturity if
positive or reduce the capital by 1% for each 1% of negative
performance in case oil ever trades below 70% during the
lifetime of the note.
Credit Agricole Autocallable on Renewables 1y
The Note on two renewable energy companies, Vestas Wind
Systems and First Solar, which are among the largest
companies in Wind and Solar energy. It is redeemed early if
on any of the quarterly observation dates the worst
performance of the two stocks is above 100%. If the note is
not called, it will repay 100% of the capital unless any of the
two stocks trades at 60% during the lifetime of the note, in
which case the capital repayment is reduced by 1% for each
1% negative performance of the worst performing stock.
PROTECTION
Bonus Warrant 90/80 put spread on S&P500 1y issued
by Citi
The warrant has positive pay-out if S&P500 index at
maturity decreases to below 90% from the current level.
If at expiry index closes below 90% of the current level
warrant pays 0.5% for every 1% below 90% level, with
maximal pay-out limited by 5%.
4
 Fusion Structured Portfolio USD Short Term: June 2019

Market Exposure Summary

- High Fixed Coupon

- Historically low risk of partial loss of capital – no loss of capital
until a certain number of defaults occur, high by historical
50% Credit standards
9.3% p.a.

- Extremally High Diversification across European and North

American corporates – more than 400 entities in total

- Split between two complimentary exposures:

- Leveraged participation in the upside provides high
return in market rallies with no capital protection on
the downside
25% Equity - Capital-protected exposure to market volatility and 8.0% p.a.
decorrelation ensures high performance during
volatile market
- Considerable expected return in normal market environment

- High Coupon in stable markets

Interest - Exposure to long-term US rates without the risks associated
15% with selling long-term bonds
6.3% p.a.
Rates
- Partial capital protection in case of market stress

- Very high coupon

- Leverage on the upside performance, capital losses on the
10% Commodity downside
15.75% p.a.

- Diversifications between traditional and renewable energy

- Equity protection in market downturns on total capital

Bonus invested in the portfolio
Warrant - Issued at no cost to investor when the whole portfolio is
bought as a package

Powered by 5
 Fusion Structured Portfolio USD Short Term: June 2019

Market Scenarios

Equity Credit Interest Rates Commodity

Low credit risk, Spreads between long

20% growth, Commodity prices
Rally corporate credit term and short term
low volatility stable or increasing
defaults are rare rates stay positive

Low credit risk, Spreads between long

Sideways trend, Commodity prices
Stable corporate credit term and short term
low volatility stable or increasing
defaults are rare rates stay positive

Spreads between long

Moderate credit risk
term and short term
20% decline, across the market, Commodity prices
Mid Stress rates can become small
medium volatility some corporate credit 30% down
negative, but stay above
defaults are expected
-0.25%

50% decline, high

High credit risk, Spreads between long
volatility, large moves
2008-type corporate defaults are term and short term Commodity prices
in individual equities
Stress common or widely rates become negative, 70% down
result in high level of
expected reaching -0.5%
dispersion

S&P 500 Index

3000

2500

2000

1500

1000

500
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Powered by 6
 Fusion Structured Portfolio USD Short Term: June 2019

Credit Exposure

- High Fixed Coupon

- Historically low risk of partial loss of capital – no loss of capital until a
50% Credit certain number of defaults occur, high by historical standards
- Extremally High Diversification across European and North American
corporates – more than 400 entities in total

The Credit linked notes in the Portfolio are linked
to the number of Credit Events amongst
corporates from either iTraxx (European
Corporates) or CDX (North American Corporates)
indices comprising either investment grade or
liquid sub-investment grade corporate entities.
The allocation is equally split between Europe and
North America and between Investment Grade
and High Yield exposure.
The probability of capital loss in each note is very
low, when comparing the threshold after which
the capital starts reducing with the historical
maximum of the number of entities impacted by a
Credit Event in a single index series since index
launch.

Number Capital
Threshold Historical Max
Underlying of Coupon loss per Issuer Weight
Defaults Events
Entities default
iTraxx Main IG Europe 125 8.59% 3 20% 1 Citi 12.5%
North
CDX IG IG 125 7.08% 5 25% 5.5 BBVA 12.5%
America
iTraxx XOVER HY Europe 75 8.86% 10 10% 7 (out of 50) Citi 12.5%
North
CDX HY HY 100 8.70% 21 20% 19 BBVA 12.5%
America

The notes within the portfolio mature in 5 years, but is expected to be rolled semi-annually into the most
recent index series, which in stable market conditions additionally brings around 1% of capital appreciation
annually.

Scenarios
Rally Stable Mid Stress 2008-type stress
Coupon (p.a.) 8.3% 8.3% 8.3% 6.5%
Expected Return (p.a.) 9.3% 9.3% 8.3% -4.13%
Duration 6m 6m 6m 2y

The stress scenario losses are calculated based on one default above the threshold for all the components
apart from iTraxx Crossover, on which we assume two defaults above the Threshold. These levels are
comfortably above all time maximums historically, including the 2008 stress.

Powered by 7
 Fusion Structured Portfolio USD Short Term: June 2019

Equity Notes

- Split between two complimentary exposures:

- Leveraged participation in the upside provides high return in market
rallies with no capital protection on the downside
25% Equity - Capital-protected exposure to market volatility and decorrelation
ensures high performance during volatile markets
- Considerable expected return in normal market environment

The two Equity Notes in the portfolio are selected to provide a balanced position with stable return
through capital gain in bull market from the Boosted Tracker and high expected return in market stress
from the Dispersion Note.

Boosted Tracker Dispersion Note

Worst Minimum of S&P 500 Performance*, Sum of absolute differences between

Performance EuroStoxx Performance 50 and SMI Dispersion each component performance and
(WP) Performance the average performance

If WP >Strike, 150% WP – 50% Strike

Maximum of
Redemption If WP <Strike, 100% WP Coupon
(Dispersion – 27%) and zero
Strike = 69.5%

*Performance is measured as the underlying price at maturity divided by the underlying price at inception

Underlying Tenor Coupon Capital Repayment Issuer Weight

20% rally – 145%
S&P 500
No move – 115%
EuroStoxx 50 1y6m None Raiffeisen 10%
20% down – 85%
Swiss Market Index
50% down – 50%
Capital guaranteed
Expected:
Dispersion on
20% rally – 100%
Basket of 1y None Citi 15%
No move – 105%
15 US Stocks
20% down – 110%
50% down – 140%

Scenarios
Rally Stable Mid Stress 2008-type stress
Coupon (p.a.) 0% 0% 0% 0%
Expected Return (p.a.) 15.0% 7.0% 2.0% 10.7%
Duration 1y 2m 1y 2m 1y 2m 1y 2m

Powered by 8
 Fusion Structured Portfolio USD Short Term: June 2019

Interest Rates
- High Coupon in stable markets
- Exposure to long-term US rates without the risks associated with
15% Interest Rates selling long-term bonds
- Partial capital protection in case of market stress

Interest rates exposure in the portfolio is gained through the exposure to US interest rates spreads, the
difference between a longer term and a shorter term rates, which is expected to be positive in stable
markets, but might becomes negative in market stress, resulting in the interest rate curves inversion. The
30y/2y and 10y/2y spreads have never been negative since the middle of 2007.

Underlying Tenor Coupon Capital Repayment Issuer Weight

4.5% multiplied by
USD CMS 30y – USD Proportion of Days during
3y 100% EFG Int 10%
CMS 2y the lifetime when Spread is
above 0%

100% on autocall
10% p.a. on autocall, otherwise if Spread
USD CMS 10y – USD
which happens when the at maturity
CMS 2y 2y Deutsche Bank 5%
Spread is above 0.5% on any > -0.25% 100%
of semi-annual observations -0.35% 90%
-0.45% 80%

Scenarios
Rally Stable Mid Stress 2008-type stress
Coupon (p.a.) 6.3% 6.3% 3.0% 1.5%
Expected Return (p.a.) 6.3% 6.3% 3.0% -2.7%
Duration 2y 2m 2y 4m 2y 8m 2y 8m

We assume negative spreads on the extreme stress scenario, which is a very unlikely scenario, given that
the rates are currently very low.

Powered by 9
 Fusion Structured Portfolio USD Short Term: June 2019

Commodity

- Very high coupon

- Leverage on the upside performance, capital losses on the
10% Commodity downside
- Diversifications between traditional and renewable energy

The commodity allocation of the portfolio is split between two Autocallable notes providing exposure to
oil and renewable energy markets. Both notes pay high fixed coupon with the risk to the capital on the
downside. There is a significant leverage on the upside on the oil exposure.

Underlying Tenor Coupon Capital Repayment Issuer Weight

100% on autocall
Otherwise:
16% p.a. on autocall,
- 2% capital increase on
if Brent is above 95% of
ICE Brent Crude 1y each 1% oil appreciation EFG Int 5%
the current price in 6
- 1% capital reduction on
months
each 1% oil depreciation
in stress

100% on autocall
Vestas Wind 15.5% p.a. on autocall, if and in non-stressed
Systems the worst performance of markets Credit
1y 5%
First Solar the is at or above 100% on Otherwise, 1% capital Agricole
any observation reduction on each 1%
negative performance

Scenarios
Rally Stable Mid Stress 2008-type stress
Coupon (p.a.) 15.75% 15.75% 0% 0%
Expected Return (p.a.) 15.75% 15.75% -25% -65%
Duration 6m 6m 1y 1y

Powered by 10
 Fusion Structured Portfolio USD Short Term: June 2019

Equity Protection

- Equity protection in market downturns on total capital invested in the

Bonus portfolio
Warrant - Issued at no cost to investor when the whole portfolio is bought as a
package

The warrant provides a positive pay-out to the holder in case the S&P 500 index decreases by more than
10% by the expiration date. Every decrease in the S&P level by 1% below 90% of the current level generate
additional 0.5% pay-out to the warrant holder. The pay-out is limited to 5% of the notional.
The warrant is issued on the total capital invested in the portfolio at no cost to investors when they buy the
whole portfolio as a package.

Underlying Tenor Payout Issuer Principal

S&P at Maturity at or above 90% 0%

S&P 500 Index 1y S&P at Maturity = 85% 2.5% Citi 100%
S&P at Maturity at or below 80% 5%

Scenarios
Rally Stable Mid Stress 2008-type stress
Coupon (p.a.) 0% 0% 0% 0%
Expected Return (p.a.) 0% 0% 5% 5%
Duration 1y 1y 1y 1y

Powered by 11
 Fusion Structured Portfolio USD Short Term: June 2019

Glossary of Terms
Structured Products
Structured products are designed to achieve highly customised risk-return objectives. The investment
return of Structured Products depends on the performance of one or more traditional underlying assets,
such as bonds, equities, commodities or major financial indices. The payment features of Structured
Products include periodic coupons and a capital repayment, which can be higher or lower than the invested
amount depending on market conditions during the product’s lifetime.

Autocallable Products
Autocallable Structured Products are constructed to be called by the issuer earlier than the expiration date
in stable market conditions. On the call date the note is redeemed and the investor receives the principal
back and a pre-determined fixed coupon. If the product is not called, the redemption conditions at
expiration date are usually worse than those at an early redemption date, for example there are usually no
coupon paid at expiry and the investor might receive less than 100% of the principal back.

Capital Guaranteed Products

Capital Guaranteed Products pay back at least 100% of the amount invested in them.

Protection Components
Protection Component is a financial product, which is constructed to deliver significant performance
increase in times of financial crisis. Including Protection Components in investment portfolios mitigate
financial losses from traditional asset classes in extreme markets.

Diversification
Diversification is an investment strategy that mixes a wide variety of investments within a portfolio. The
rationale behind this technique is that a portfolio constructed of different kinds of assets, which are not
perfectly correlated, have less variance than the average variance of its components, reducing the overall
investment risk.

Correlation
Correlation measures the strength of the relationship between the relative price movements of two assets.
A positive correlation means that the prices for two assets move in agreement with each other, in the same
direction. A negative correlation means that the prices move in opposite directions, while zero correlation
implies no relationship between the price movements.

Dispersion
Dispersion measures how much the return of each individual stock deviates from the average return on
equities in the market.

Duration
Duration is an expected time until the principal of the product can be repaid. It can be given by the time to
the expiration date of the product or can be shorter, if the product is expected to be redeemed earlier at a
pre-determined price, for example Autocallable products.

Average Duration
Average Duration is a weighted average of the durations of the products inside an investment portfolio.

Expected Return
Expected return is the money expected to be made or lost on the investment in annual equivalent. It is
given as a percentage derived from the ratio of profit to capital invested, adjusted by the duration, so that it
represents an annualized percentage. Expected return takes into account any regular coupons as well as
expected appreciation or depreciation of the principal amount invested.

Powered by 12
 Fusion Structured Portfolio USD Short Term: June 2019

Company Information
Fusion Asset Management (Fusion) is an investment management firm which was set up in
2004. The firm is based in London and is regulated by the FCA. The core of Fusion expertise lies
in the combination of extensive market experience with a quantitative approach to portfolio
construction and risk management discipline. The firm culture aims at maintaining the stability
of the investment and operations teams, helping to preserve the expertise and development of
investment know-how. Fusion has a 15-year track record of managing investment products and
providing advisory services, with particular emphasis on protective strategies. Fusion uses its
expertise in protective strategies across all Fusion products.

Fusion Asset Management LLP

8-10 Great George Street, London, SW1P 3AE
United Kingdom

T: +44 207 802 22 80

E: info@fusionam.com
W: www.fusionam.com

Legal Information
Past performance is not a reliable indicator of future results. The value of any investment and the income
from it is not guaranteed and can fall as well as rise, so that you may not realise the amount originally
invested. Where an investment is denominated in a currency other than sterling, changes in exchange rates
between currencies may cause investment values or income to rise or fall. The portfolios may invest in funds
or other financial products which have limited liquidity, or which individually have a relatively high risk
profile and/or be unregulated by the Financial Conduct Authority (FCA). This document is issued and
approved by Fusion Asset Management LLP (“Fusion”), which is authorised and regulated by the FCA (FRN:
401334). The information and opinions contained in this document are for background purposes only and do
not purport to be full or complete. Nor does this document constitute investment advice. No representation,
warranty, or undertaking, express or limited is given as to the accuracy or completeness of the information
or opinions contained in this document by any of Fusion, its Group Companies, partners or employees and no
liability is accepted by such persons for the accuracy or completeness of any information or opinions. As
such, no reliance may be placed on the information and opinions contained in this document. This material is
not an offer or invitation to buy or sell securities. Fusion is not registered as an investment advisor with the
SEC and therefore this document is neither directed at nor intended for US investors. Nothing in it
constitutes advice to undertake a transaction, and professional advice should be taken before investing. This
document is not investment research. Opinions expressed (whether in general or both on the performance
of individual securities and in a wider economic context) represent the views of Fusion at the time of
publication. They should not be interpreted as investment advice.

Fusion Registered Head Office: 8-10 Great George Street, London, SW1P 3AE. Registered in England and
Wales, No: OC308197.

Powered by 13