August 4, 2009

Saxo Asset Allocation – Outright Bearish Scenario

Allocation SAXO BANK RESEARCH
Our Asset Allocation Model is currently maintaining the allocation from the past 16 months
with an overweight (70%) in bonds and 30% being short stocks and commodities. Note that we David B. Karsbøl
shifted the bond exposure from long duration to short duration 2 months ago (beginning of Chief Economist
June). Our model currently suggests the following weights: DKA@SaxoBank.com

Asset Allocation Weights John J. Hardy

Scenario MSCI World MSCI EM Commodities Bonds FX Strategist
Outright Bearish -20% -5% -5% 70% JJH@SaxoBank.com
Portfolio Christian T. Blaabjerg
In order to directly or synthetically create the recommended exposure in the present Equity Strategist
scenario, an investor should allocate capital as follows: CTB@SaxoBank.com

Portfolio Replication Mads Koefoed

Position Exposure Name (Ticker) # (1 mio. EUR capital) Market Strategist
Short 12,0% S&P 500 INDEX -172 MKOF@SaxoBank.com
Short 3,0% DJ EURO STOXX 50 = Pr -11
Short 3,0% NIKKEI 225 -394 Robin B. Sjöback
Market Strategist
Long 3,5% PROSHARES ULTRASHORT MSCI EM 3277
RSJO@SaxoBank.com
Long 5,0% ETFS SHORT ALL COMM DJ-AIGCI 623
Long ** 35,0% ISHARES BARCLAYS 1-3 YEAR TR (SHY) 6042
Long ** 35,0% ISHARES EURO GOVT BOND 1-3 (IBCA) 2556
*) A EUR-denominated investor should get rid of the implicit currency exposure in the portfolio by buying 3% EURJPY,
5% EURGBP and 50.5% EURUSD. For an investor with a 1 million EUR portfolio, this would equal 30,000 EURJPY,
50,000 EURGBP and 500,500 EURUSD.
**) In order to yield the results in the back-testing, and investor should allocate capital to the bonds mentioned on
page 3, but for smaller clients the iShares Bond Funds should give a sufficient return.

Performance
Our benchmark is an index consisting of returns from 33% EFFA +10 year Treasuries, 33%
MSCI World and 33% CS Tremont Long/Short Equities. Given the back-testing since 1992 and
the historical aggregated volatility of the individual allocations of the portfolio in the present
scenario, the following risk measures and expected returns apply for the suggested portfolio:

Historical Performance Metrics

Scenario Sharpe Ratio VaR (95%-level) Std.dev (%) Exp. Return (%)
Outright Bearish 0,45 4,60 2,80 1,26

For important disclosures, refer to the

Disclosures Section, located at the
end of this document.

Saxo Bank. Serious Trading. Worldwide.

Saxo Asset Allocation - Outright Bearish Scenario
Global Business Cycle Indicator
Our global business indicator in an expression of how much global economic activity is accelerating or decelerating. It
seems that the pace with which the global economic activity is decelerating is petering out. However, it is still
contracting dramatically. In our Asset Allocation Model, this scenario is characterized as “Outright Bearish”.

Allocation Weights
The capital allocation weights depend on the economic scenario. The current scenario is “outright bearish”, since the
global economy is decelerating at a record pace. Deflation – or at least disinflation – is a likely outcome in this scenario
and therefore the model is recommending a heavy exposure to bonds while shorting business cycle sensitive asset
classes like especially EM stocks and Commodities and Stocks in general.

Asset Allocation Weights

Scenario MSCI World MSCI EM Commodities 1-3-Year Bonds ***
Outright Bullish 30% 5% 45% 20%
Moderately Bullish 43% 7% 11% 40%
Moderately Bearish 12% 8% 0% 80%
Outright Bearish -20% -5% -5% 70%

*** Note that we have changed from the suggested +10-year maturity bonds to a maturity no longer than 3-years, as
we are fearing that irresponsible fiscal policies will lead to a bond market dislocation – hurting the long-maturity bonds
the most.

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Saxo Asset Allocation - Outright Bearish Scenario

Backtesting and benchmarks

Our backtesting (since 1992) of the asset allocation model is done via MSCI World, MSCI Emerging Markets, The CRB
Commodities Index and +10-Year Bloomberg/Effa Government Bond TR Benchmark Indices. The backtesting indicates
that the model is able to yield a return of 12.5% per year (excluding dividends) with an average Sharpe ratio of 1.4.

Backtesting Results for Saxo Bank Asset Allocation Model: 12.5% p.a.

Bond Model
Our Bond Model is based on national sub-indices of our Global Business Cycle Indicator. The overall idea is to buy
government fixed income in the country with the most rapidbly deteriorating economy (from a rate perspective). The
back-testing shows that this strategy is superior to the benchmark (an equal weighted index of returns for 10-year
treasuries in the US, the Euro-Zone, Japan, UK, Canada, Switzerland, Norway, Sweden, New Zealand and Australia).

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Saxo Asset Allocation - Outright Bearish Scenario
The Bond Model is backtested using the Bloomberg/EFFA Bond Indices. In the current environment, it recommends the
Canadian Govt 10+ YRS Index, but we are advising to deviate from the model by going for short durations to avoid the
“issuance risk”. To approximate that current exposure an investor should buy:

33.3% in CAN 2.750 12/1/10

33.3% in CAN 1.250 6/1/11

33.3% in CAN 6.000 6/1/11

Since the model is looking for the most decelerating country, the CAD might be under pressure. Therefore, it is
recommended that investors with e.g. a EUR denominated account buy equal amounts of EURCAD to get rid of the
implicit currency exposure from buying the bonds.

Bond Model Output: Where to Invest

Month AUD CAD CHF EUR GBP JPY NOK NZD SEK USD
jun-09 0,2 -0,4 -0,3 0,0 -0,2 0,0 -0,2 0,1 0,1 0,0
maj-09 0,2 -0,5 -0,4 -0,1 -0,3 -0,2 -0,2 -0,1 0,0 -0,1
apr-09 0,2 -0,7 -0,5 -0,2 -0,4 -0,5 -0,4 -0,4 -0,1 -0,3
mar-09 -0,1 -1,0 -0,8 -0,5 -0,6 -0,7 -0,6 -0,7 -0,3 -0,6
feb-09 -0,2 -1,1 -0,7 -0,6 -0,7 -0,9 -0,6 -0,6 -0,5 -0,8
dec-08 -0,5 -0,6 -0,6 -0,6 -0,7 -0,7 -0,5 -0,1 -0,7 -0,9
jun-08 -0,6 -0,1 -0,2 -0,3 -0,4 -0,1 -0,1 -0,5 -0,4 -0,3

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Saxo Asset Allocation - Outright Bearish Scenario

General
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HDAXA/S (hereinafter referred to as “Saxo Bank”). The material is
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Analysis Disclosure & Disclaimer

Index Technicals Austria – ATX
The pivot support and resistance levels and the trend indications displayed below are provided forLosers
Gainers trading purposes.
Risk warning
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BOEHLER-UDDEHOLM #VALUE!
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herein or that6,66% ERSTE GROUP
losses in connection BANKcan
therewith AG or will be limited.
-8,21% Trades-36,08%
in accordance-54,60%
with the
recommendations
INTERCELL AG in an analysis, 3,17%
especially leveraged
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-20,19%such as foreign exchange
MAYR-MELNHOF tradingAG
KARTON and investment
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GENUSSCHEIN
NESTLE SA-REG 5,43% -10,50% -17,04% BALOISE HOLDING-REG -0,28% -29,99% -52,78%