Finlight Research - Market Perspectives - May 2015

Market Perspectives
May 2015
May. 8th, 2015
www.finlightresearch.com
"May Day! May Day!"

“There is accumulation; there is responsibility;
after these, there is unrest, great unrest.”
– Julian Barnes – The Sense of an Ending
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FinLight Research | www.finlightresearch.com

Executive Summary: Global Asset Allocation
After 6 years of monetary pumping and low volatility, dark clouds are now
rising on risky assets
In April, weak US GDP has raised questions about the timing of Fed rate hikes
The market repriced monetary policy and anticipated the Fed would be more dovish
than previously expected. The dollar weakened, driving commodities to the upside.
The market interpreted the April employment report as disappointing, but we think
data continue to support a first Fed hike in June or September and a strengthening
of the US dollar.
Sentiment is also shifting on U.S. inflation expectations as fresh signs appear that
US inflation has bottomed, pushing long-term yields higher
The coming rate hikes (probably in Jun. or Sep.) is not priced in yet. It will depress
all asset prices for at least part of next year, in our view
The prospect of rising interest rates, a stronger US dollar and economic uncertainty ,
could also be a trigger for higher cross-asset volatility.
Historically, the mixture of rising volatility and interest rates has had a bad
effect on equity prices
At this stage, valuation levels in equity (coupled with a deteriorating US corporate
earnings growth and a slowing productivity) and credit are high enough to make us
cautious. But we stay Neutral equities as far as our hurdles are not breached.
We still see a solid case for further dollar strength, lower oil prices and lower
commodities.
Maintain UW government bonds and corporate credit overall (but with an intra-
asset class preference for IG vs HY, Eurozone vs US in HY, US vs Eurozone in IG),
OW US dollar and UW commodities (especially energy and precious metals)
We summarize our views as follows
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MACRO VIEW
The Good
Last Employment Cost Index (ECI) wage release has shown the sharpest increase since 08’
and jobless claims collapsed to a low since 2000
In contrast to the US, top-line results were strong in Europe with 73% of the companies
beating sales estimates
The ISM Manufacturing report was unchanged from prior month (51.5), but came in with an
increasing New Orders (53.5)
The Bad
Q1 GDP was quite weak(annualized +0.2%), while YoY revenue growth contracted 4.1%
US Earnings picture is a bit negative with a 71% beat rate on earnings, and only 46% on
revenue. Both numbers are below average.
Durable goods as a whole were up, but "core" durable goods were down for the 6th month in a
row.
China PMI declines for the 4th consecutive month
The Ugly
Greece remains the wild card in Europe
Main systemic risk resides in China: China data depicts a weakening economic picture.
China’s economy is supported by approximately six trillion dollars of 'shadow debt', coupled with
an unprecedented credit-fueled construction madness, and now a bubble-like stock market
(Shanghai Shenzhen 300 index +17% in April, 37% YTD) Systemic risk is around the corner
4

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The Big Four Economic Indicators
The overall picture had been one of a slow recovery, but there is no indication of a recession using the
indicators monitored by the NBER.
Personal Income (excluding Transfer Receipts) in March declined -0.27% in real terms. This was its first
decline in 15 months. But it is still 3.09% up YoY.
The Big Four average has decreased for the second month in a row.

6
GS – Global Leading Indicator (GLI)
Nothing exiting yet on the GLI
front!
After 2 months in contraction
phase, we are now in ‘Recovery’,
right on the border of ‘Expansion’
6 of the 10 underlying components
of the GLI improved in April
We’ve been thinking for a while
now that the acceleration we’ve
seen last year was quite modest
for a typical expansion phase.

7
Consumer Confidence
At 95.2, the Conference Board
Consumer Confidence Index was
substantially below the March final
reading of 101.4.
From the Conference Board press
release : “Consumer confidence,
which had rebounded in March,
gave back all of the gain and more
in April. […] The Present Situation
Index declined for the third
consecutive month. Coupled with
waning expectations, there is
little to suggest that economic
momentum will pick up in the
months ahead.”

8
US Economy
The Economic Activity Surprise Index (EASI) has been negative this year, highlighting weaker US
growth data
But the index is now retracing toward zero, implying that data have been less disappointing

9
US GDP
Q1 GDP was quite weak at an
annualized +0.2% growth rate
At end of April, Fed’s proprietory
GDPNow model was pointing to a
meager 0.1% GDP growth in Q1-
2015… well below other forecasts.
Is weather the only reason of such
an ugly picture?

10
US Economy – Unemployment & Inflation
US unemployment rate declined further. Labor
market continues to approach full employment.
The US unemployment rate is now 0.3% from
the Fed’s estimate of NAIRU (level of
unemployment below which inflation rises)…
increase in Fed’s confidence on inflation returning
to trend
We witness an unusual situation that combines
the weakest real GDP growth with the strongest
growth in employment.
We are convinced that:
US economy (like global economy) is operating
near its (new / lower) potential
The drop in labor productivity growth and weak
potential GDP growth are both pointing to a
“new normal” of lower equilibrium interest rates
and lower GDP growth.
The declining supply of new labor should
create inflation earlier than previously expected
and induce earlier rate hikes.

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US Economy – Cost of Labor
Three measures of hourly wages are
showing slightly different pictures of the
labor cost:
The trend in average hourly earnings is
slowing for production and
nonsupervisory workers, but looks
stable for all workers.
The Employment Cost Index (ECI)
shows that wages are accelerating
to the upside.
This is probably another sign of the
shortage in labor supply

12
Student Loans
According to the New York Fed’s quarterly
report on household credit, 17% of all student-
loan borrowers were delinquent (at least 30
days behind on a payment) at the end of 2014
The official measure gives delinquency rate as a
share of all Americans with student debt, but
45% of borrowers are not required to make
payments yet (still in the grace period or has
permission to suspend payments).
The real picture gets gloomier, when
excluding borrowers not in repayment. New
research from the Federal Reserve Bank of St.
Louis shows that 31.5% of those who are now
having to pay down their student debt are at
least a month behind on their payments

13
Eurozone Economy
Eurozone economy has
maintained the same growth
momentum as in March.
The final Markit Eurozone PMI
for April came in at 53.9
This seems compatible with
0.4% economic growth in Q2-
2015

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Chinese Economy
China data shows a weakening
economic picture
The HSBC final PMI fell to 48.9
(from 49.6 in March). This is its
fastest drop over 12 months
China factory activity is sluggish,
making more stimulus measures by
the central government inevitable
(especially now that housing and
food prices have cooled)

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EQUITY
Is the market at an inflection point after 6 years of (almost) straight rally? The answer seems
imminent.
The medium-term uptrend in stocks remains technically intact. The S&P500 is still trying to make new
highs. But the market seems trapped in a sideways trading range, probably awaiting a catalyst
(earnings? FOMC?) to breakout one way or another.
We still believe that equity markets are living on borrowed time because…
Earnings season hasn't provided the catalyst needed for the breakout to the upside
No earnings growth is expected in the first half of 2015
Valuations are well above historical norms, especially when we take into account the slower
revenue growth and the starting wage pressures
Stocks are entering a seasonally unfavorable period
The coming rate hikes (probably in Jun. or Sep.) is not priced in yet. It will depress all asset
prices for at least part of next year, in our view
Some of the high beta parts of the market (Russell 2000, Nasdaq) have started to show
exhaustion
Recent data shows more evidence of lower productivity, lower potential GDP growth and
higher inflation risk. This is a bad scenario for stocks

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EQUITY
Bottom line :
Nothing new compared to our previous report. We remain Neutral equities as long as they stay
trapped in their sideways trading range
We may revise our view to OW after a clean break of the 2070-2125 range to the upside on the
S&P500, and to UW below the trend since Nov. ‘12 lows
We think it is wise to incrementally "de-risk" your portfolios by focusing on higher quality / more
defensive / more favorably priced companies
We remain long-term OW on Japan (always on an FX hedged basis) as we see further upside
for Japanese stocks from the improvement in macro data and corporate earnings momentum.
Tactically, we stay Neutral on Japan waiting for an imminent consolidation.
We remain Neutral on Europe vs. US despite the massive ECB’s QE. According to the 12 month
forward P/E, Europe is now trading at 15 year highs, relative to the US
We switch to OW EM stocks (ex-China) given the improvement in relative growth forecasts in EM
vs DM and the strong momentum in place. We prefer to keep away from Chinese market.
We remain UW in US small caps vs large caps.

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Earnings
S&P500 Q1-2015 EPS is expected at $27.7 (down
from $29.5 on Jan. 1st).
YoY Q1 EPS growth is now running at -1.6%.
(+4.6% YoY was at the start of the year).
Earnings picture in the US is a bit negative with
a 71% beat rate on earnings, and only 46% on
revenue. Both numbers are below average.
The picture is better in Europe where top-line
results were strong with 73% of the companies
beating sales estimates

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Earnings
For Q2 2015, 41 companies have issued negative
EPS guidance and 22 companies have issued
positive EPS guidance
The forward 12-month P/E ratio for the S&P 500 now
stands at 16.8, well above historical averages: 5-
year (13.7), 10-year (14.1)
The earnings forecast for the S&P 500 has
deteriorated a lot since Jan. 1st
The 12-month EPS estimate is now at $124.23
(source: FactSet)
Based on Factset data, analysts predict YoY
earnings declines to continue through Q3-2015, but
still expect EPS to reach record levels in Q4-2015

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US Stocks vs Govies
Despite our caution against equities, we still
think that the current macro-economic
backdrop is likely to be more favorable for
stocks than for bonds :
Equity valuations still provide some
cushion against rising bond yields
Momentum favors equities over bonds.
The same for flows of liquidity.

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S&P500 – a Long-Term Perspective
The Q Ratio (or Tobin’s Ratio) is
the total market price divided by
the replacement cost of all its
companies
According to this indicator,
market is heading deeper in
overvaluation territories

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S&P500 – A Short-Term View
S&P500 chart should be monitored
closely… Some key technical hurdles
should be cleared before we can hope
seeing the S&P substantially higher.
The rising wedge pattern we’ve been
watching since Nov. ’14 should reach a
resolution shortly (2-3 weeks?). Things will
break one way or another.
2 levels to keep in mind: 2125 on the
upside and 2070 on the downside.
Without a clean breakout to the upside,
selling pressure will be back.

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Chinese Stocks
“When Your Banana-Guy Starts Trading Stocks, You Know
It's Over” (Source: Zerohedge)
4.13 million new A-Share accounts were opened during
just the last week of April!
Source: Zerohedge

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Chinese Stocks
The picture is even worse when compared to the Nasdaq during the internet bubble

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Trading Model – S&P500
As of May 8th, our prop. Short-Term trading model is modestly short on the S&P500 (2116.1).
The model went massively short on Apr. 15th (2106.63), reversed its position on May 6th (2080.15) and
went short again on May 8th (2116.1)
The model targets 2083, 2062 and 2041 on the downside

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FIXED INCOME & CREDIT
Sentiment is shifting on U.S. inflation expectations with new signs showing that US inflation has
bottomed.
The induced surge in UST yields was reinforced by the last ECI wage release (strongest since 2008)
and the favorable jobless claims report (at lowest level of the past 15 years)
German inflation numbers are also coming in hotter than expected. Evidence of stabilizing
inflation in Europe triggered an impressive sell-off in Bunds (by magnitude and duration). It seems that
German yields set a low in April.
The market interpreted the April employment report as disappointing (implying a curve steepening in
the US), but we think data continue to support a first Fed hike in June or September. We continue to
bet on a significant flattening of the US yield curve and stay tactically short 3-year Treasuries
We still look for the bear market on USTs to resume.
We’ve been Neutral UST since end of Nov. ’14. US long-term rates are stuck in a range. 10-year
yield is poised to trade 1.85-2.05% (perhaps 1.75-2.25%) until we get closer to Fed hikes. Our
medium-term outlook would stay neutral as far as the 10y UST yield remains below 2.25.
We interpret the last sell-off in German Bund as the reversal we’ve been awaiting. We move UW on
German Bund (within the sovereign FI asset class) and remain so as long as the 10-year yield
stays above the 0.45 – 0.50 area.
We will switch to Neutral again as the 10-year yield reaches our short-term target around 0.75 – 0.90.
Bund yields will rise hardly further given the intensive buying by the ECB

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FIXED INCOME & CREDIT
The search for yield within the fixed income complex remains strong
It is obvious in such a macro economic environment that yield-starved investors should be more
selective and look for yield by taking on more credit risk, rather than duration risk.
Lower rated new-issue volume has been increasing since the financial crisis. That should drive the
default rate higher and HY spreads wider.
We remain UW on corporate credit, due to valuation, to rising corporate leverage (specially in the
US), to rising volatility, to position within the credit cycle and given the weak total return forecast
Within the credit pocket, and over the very short-term, we stick with our preference for Eurozone HY
corps vs US HY corps, because of the ECB massive QE, more resilient macro in the Eurozone, and
the still elevated beta of US credit spreads to oil prices.
However, we remain UW on Eurozone vs US IG. Our last month switch from OW to UW has proved
to be a wise choice given the move we’ve seen on Govies
We still prefer IG over HY on a risk-adjusted basis as we expect higher volatility on spreads
Bottom line : UW Govies, UW Eurozone vs. US Govies, Long flatteners on the US yield curve, UW
credit, OW Eurozone vs US HY credit, UW Eurozone vs US IG credit, Neutral TIPS and OW HICP
Inflation, UW High Yield vs High Grade, Neutral on EM corporates

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Eurozone Govies – 10y Bund
April move on the 10-year German
yields was impressive… A
bloodbath among the eternal longs!
Is that the true reversal we’ve been
waiting for, or just a corrective
pullback before the downtrend
resumes?
At this stage, we favor alternative 1
and move UW on German Bund
(within the sovereign FI asset
class)
We expect the reversal to persist
and remain UW on German Bund
as long as we stay above the 0.45
(the downtrend from Jan ‘14) –
0.50 area.
We target 0.75-0.90. Bund yields
will rise hardly further given the
buying by the ECB.

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US Govies – 10y UST
Sentiment is shifting on U.S.
inflation expectations with new
signs showing that US inflation has
bottomed.
We’ve been Neutral UST since end
of Nov. ’14, waiting for the 10-year
yield to break out of its 1.75-2.25%
range before changing our view.
Our medium-term outlook would
stay neutral as far as the 10y
UST yield remains below 2.25
10y-UST yield is now very close to
the 2.25 threshold, struggling to
break the previous March high at
2.257.
Holding above the 200d-MA at
2.186% is needed to feel
comfortable with a bearish view
on USTs.

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Europe vs US Credit
In April, in contrast to IG where Europe continues to trade in line with US, Europe underperformed
in HY: CDX.HY tightened by 5bp while iTraxx Xover widened by 13bp.
The remaining spread gap (~50bp, half its level in mid March) is primarily explainable by single name
risk.
The recent underperformance of iTraxx Xover is mainly attributable to one or two names: Norske
Skogindustrier and Abengoa.

30
Credit Trends
The rolling 12-month upgrade to downgrade ratio
by issuer increased slightly to 1.00 (and 1.04 in par
amount). We should keep an eye on it.
Lower rated new-issue volume has been increasing
since the financial crisis. It should drive the default
rate higher.

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EXCHANGE RATES
EUR/USD failed to clear 1.1390, which needs to be cleared to eliminate the persistent risk of a renewed
downtrend
The sharp reversal we’ve seen on EUR-USD was mainly driven by Bunds.
From a strategic perspective, We still see a solid case for further dollar strength, based on monetary
policy divergence between the US and other DMs.
Historically, USD cycles have been persistent, lasting 5-6 years in the appreciation phase. We thus see
further medium term USD gains against the major crosses (especially EUR and JPY) and expect a
cyclical low in EUR/USD somewhere in 2016 (with the ECB tapering)
We made however some adjustments to our tactical positioning on USD:
On the DXY index, our 100 hurdle was not reached and we decided to switch from a bullish to a
more neutral stance as the 96 level was broken to the downside.
On EUR-USD, we decide to move Neutral around 1.12 and wait to see how the pivot behaves
near the 1.1296. EUR/USD needs to clear 1.1390 to erase the downtrend risk. We need to break
below 1.10 before switching to UW again.
USD-JPY was unable to break the 122.04 highs, but held nicely against its 100-days MA. We remain OW
USD-JPY as far as the pivot stays above 1.18 and below the 124-125 area

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US Dollar Index - DXY
From our previous report: “The spot
has finally broken above our first
target of 96.00[…] Our ultimate
target remains at 102.50. To feel
more comfortable with our bullish
view, the 100 threshold should
be meaningfully breached to the
upside”.
Unfortunately, the 100 threshold
was not reached and we’ve
switched from a bullish to a
more neutral stance as the 96
level was broken to the
downside.
The DXY has even broken its
uptrend from the August low.
We need to see the index
reemerging above this trendline
(~95.15) and the 96.25 level
before moving to OW again.

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EUR-USD
In our previous report, we said : “We
remain UW EUR-USD as long as the
pivot stays below 1.11 - 1.13 and
move Neutral above to play the
correction towards 1.17-1.18.”
In April, EUR-USD did break below
our target of 1.0690, but was unable
to reach our ultimate target at 1.0250-
0.98
We decide to move Neutral around
1.12 and wait to see how the pivot
behaves near the 1.1296 level
We need to break below 1.10 before
switching to UW again.

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EUR-USD
From a longer term (techs)
perspective, 1.1237 looks to be the
level to be watched.
Given the very low level of monthly
oscillators, a Neutral stance
seems more appropriate at this
stage. The recent lows at 1.0495
could be a big turning point.
Our medium-term view remains
biased towards a strengthening
of USD as far as the 1.16 level
(given by the downtrend from
Jul. ‘14) is preserved

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COMMODITY
Despite the rally seen in April (mainly driven by a weaker US dollar and expectation of more
stimulus in China), the trend remains bearish. There is no indication of a bottom formation yet.
Global commodity prices could stay suppressed as less demand from China leads to greater
oversupply
We remain UW commodities. We continue, however, to like owning the GSCI index, and think
that commodities hold value as cross-asset portfolio diversifiers.
Bottom Line :
Base Metals: Base metals prices were up over 7% in April, without any fundamental justification
(except Copper for which we’ve seen a modest increase in Chinese demand). We remain Neutral on
base metals, but do not like holding Copper as it appears highly overvalued relative to the dollar
and the global growth. We are also UW aluminum and zinc as the recent price increases have run
ahead of fundamentals
Agri: Excess supply and substantial stocks (built since the 2012 drought) are weighing on prices.
Absent a severe weather shock, it is unlikely that agriculture prices will spike this year. We still
anticipate they will revert to 2009 level, over the medium-term. Nevertheless, we decided to
tactically switch from UW to Neutral because of the bearish bets on agricultural commodities
accumulated by managed money. Short positions are near all-time record highs, particularly in corn
and wheat. A crowded deal we don’t like…

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COMMODITY
Energy: In April, and according to our trading rule (please see our previous monthly report), we
switched to Neutral at 54 on WTI.
We will move to OW if the WTI breaks above 63, and to UW again if it trades below 56.5 (to target
March lows).
We still think it is too early to expect major upside for the price of oil as the US is sinking deeper
in a glut of excess oil.
Precious Metals: We change nothing to our view on precious metals. The stimulus provided by the
ECB & BoJ is already factored in gold prices. Precious metals are vulnerable to higher US real
yields and stronger dollar
We think that as long as gold is trading below 1225, it could be heading back down to test the March low
We remain UW above 1150-1170 band. We will move Neutral below 1150 and switch
progressively to OW (accumulate) as the spot slides down towards 1000-980, which is likely the
final leg down. Only a clean break above 1225 may push us to reconsider our view.
Our first target on silver stands at 14.70. We still think that Silver (like gold) is probably ready for its final
leg down towards 12.50. At current levels, we are UW. we will switch progressively to OW
(accumulate) as the spot breaks the first material resistance around 14.70 and slides down towards
12.50
We may reconsider our UW position if the Silver breaks above 16.7-17.

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S&P GSCI Index
Commodity indices picked up in April
Commodity prices were boosted by:
A weaker dollar and the rebound in oil prices
Market expectation of more stimulus measures by the central government in China given the
disappointing factory activity. Base metals were driven to the upside without any fundamental
support.
Source: Bloomberg

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Crude Oil – Tech. Perspective
In our previous report, we said
about WTI “There are some LT
signals of a base forming. […] A
weekly close above the 53-54
area will oblige us to switch to
Neutral (if not OW)”
We indeed switched to Neutral
at 54.
Just below 63 (38.2% of the
decline since Sep ‘14), the spot
showed some signs of exhaustion,
and turned south.
The next important support to
watch stands at 56.5. The spot
needs to break below it in order to
reintegrate its previous range.
We will move to OW if the WTI
breaks above 63, and to UW
again if it trades below 56.5 (to
target March lows)

39
Gold
Gold is still testing important
support at 1,175. A break below
will open the door to 1165 and
then to March lows (1142).
We change nothing to our
strategy: We remain UW Gold. We
move Neutral below 1150 and
switch progressively to OW
(accumulate) as the spot slides
down towards 1000-980, which
is likely the final leg down.
Only a clean break above 1225
may push us to reconsider our
view.
We think that as long as gold is
trading below 1225, it could be
heading back down to test the
March low.

40
Gold Bugs
Gold stocks have been showing a
notable strength since early April.
The Gold Bugs Index is now testing a major
resistance given by the downtrend from
2013 highs.
A break above 185 would signal an
acceleration to the upside.
On the other hand, a break below 160
would be a big sell signal.

41
Silver
The one chart we will be watching
closely is the silver chart
Silver looks far more easy to
monitor.
Two levels to watch: 16.7-17 as a
resistance and 15.7 as a support
(bottom of the triangle setup)
We still think that Silver (like gold) is
probably ready for its final leg down
towards 14.7 and 12.50.
At current levels, we remain UW.
we will switch progressively to OW
(accumulate) as the spot breaks the
first material resistance around 14.70
and slides down towards 12.50
We may reconsider our UW
position if the Silver breaks above
17.

42
Silver
It’s worthwhile noting that
commercials (producers) are short
silver, when speculators are still
positioned for the upside.
Commercials are the players with
inside knowledge.
Last year, commercials have had
the right timing going short oil…

43
ALTERNATIVE STRATEGIES
Hedge funds ended April on a positive note (+0.83% MTD and +3.07% YTD on the HFRI Weighted
Composite Index). Performance was led by the HFRI Emerging Markets Index (+7% MoM thanks to
China among others)
Best performers were Equity Hedge (+2.0% MTD) thanks to energy.
April was a bad month for Trend-following CTAs (-2.2%), Global Macro ( -1.2%) and Equity Market-
Neutral (-0.5%)
In April, the market repriced monetary policy and anticipated the Fed would be more dovish that
previously expected. Thus, the dollar weakened, driving commodities up.
CTAs suffered from this trend reversals, especially on FX, fixed income and Commos.
Global macro funds were negative as gains posted on short European duration and long commodities
were more than offset by losses on European equities and short EUR positions.
We stick to our preference for risk diversifiers (pure alpha generation strategies) over return
enhancers.
We change nothing to our strategy selection. We maintain our previous OW positioning on:
Equity Market Neutrals both for their “intelligent” beta and their alpha contribution.
CTA’s and Global Macro as a diversifier and tail hedge.
Vol. Arb strategy and prefer funds that trade volatility globally (all assets / all regions). This is our
way to position for a higher volatility regime.

44
Global Macro Funds
In April, MF funds suffered from the sharp
drop in the US dollar and the bad performance
of Eurozone equities.
Fortunately, these losses were offset by profits
made in:
FI as MF funds were globally short
duration in European Govies
Through long positioning in commodities
(especially industrial metals)

45
CTAs
In April, trend-following strategies (with their popular trades: short EUR vs USD, short energy, long
Govies) suffered from trend reversals in fixed income, FX and commodity markets.
On the positive side, CTAs made money on equity longs.
Even the biggest names were hurt hard: Winton post its worst month since 2008 (-4%) and AQR’s
Managed Futures Managed Futures Fund was down -3.21%,
Some short-term CTAs had proved to be more resilient as they managed to adjust rapidly their
positioning to trend reversals (in FI, FX and Commos).
Most CTAs are now reversing their positioning on rates, going short FI, and reducing their shorts on
energy.
Source: Attain Capital

Bottom Line: Global Asset Allocation
After 6 years of monetary pumping and low volatility, dark clouds are now
rising on risky assets
In April, weak US GDP has raised questions about the timing of Fed rate hikes
The market repriced monetary policy and anticipated the Fed would be more dovish
than previously expected. The dollar weakened, driving commodities to the upside.
The market interpreted the April employment report as disappointing, but we think
data continue to support a first Fed hike in June or September and a strengthening
of the US dollar.
Sentiment is also shifting on U.S. inflation expectations as fresh signs appear that
US inflation has bottomed, pushing long-term yields higher
The coming rate hikes (probably in Jun. or Sep.) is not priced in yet. It will depress
all asset prices for at least part of next year, in our view
The prospect of rising interest rates, a stronger US dollar and economic uncertainty ,
could also be a trigger for higher cross-asset volatility.
Historically, the mixture of rising volatility and interest rates has had a bad
effect on equity prices
At this stage, valuation levels in equity (coupled with a deteriorating US corporate
earnings growth and a slowing productivity) and credit are high enough to make us
cautious. But we stay Neutral equities as far as our hurdles are not breached.
We still see a solid case for further dollar strength, lower oil prices and lower
commodities.
Maintain UW government bonds and corporate credit overall (but with an intra-
asset class preference for IG vs HY, Eurozone vs US in HY, US vs Eurozone in IG),
OW US dollar and UW commodities (especially energy and precious metals)
We summarize our views as follows
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Disclaimer
This writing is for informational purposes only and does not constitute an
offer to sell, a solicitation to buy, or a recommendation regarding any
securities transaction, or as an offer to provide advisory or other services
by FinLight Research in any jurisdiction in which such offer, solicitation,
purchase or sale would be unlawful under the securities laws of such
jurisdiction. The information contained in this writing should not be
construed as financial or investment advice on any subject matter.
FinLight Research expressly disclaims all liability in respect to actions
taken based on any or all of the information on this writing.

About Us…
FinLight Research is a research-centric company focused on Asset Allocation from a top-down
perspective, on Portfolio Construction, and all related quantitative aspects and risk management issues.
Our expertise expands along 3 axes:
Asset Allocation with risk control and/or risk budgeting techniques
Allocation to alternative investments : Hedge funds, rule-based strategies (momentum, value,
carry, volatility), real assets (real estate, infrastructure, farmland, timberland and natural resources).
Private equity and venture capital should be the next step…
Allocation with a factorial approach built on the understanding (profiling) of the risk/return drivers of
the different asset classes
FinLight Research is an innovation-oriented company. We target to fill the gap between the
academic research and the investment community, especially on real assets and alternatives. We survey
on a continuous basis the academic literature for interesting published and working papers related to
quantitative investing, non-linear profiling, asset allocation, real assets...
48

Our Standard Offer
Provide tailor-
made quantitative
analysis of your
portfolios in terms
of asset allocation,
risk profiling and
risk contribution
Provide tailor-
made quantitative
analysis of your
portfolios in terms
of asset allocation,
risk profiling and
risk contribution
•Risk Profiling
Offer a turnkey 3-
step factor-based
process in GAA
with factor
selection, risk
budgeting and
dynamic portfolio
protection
Offer a turnkey 3-
step factor-based
process in GAA
with factor
selection, risk
budgeting and
dynamic portfolio
protection
•Factor-based GAA Process
Provide assistance
with alternative
investments
(including real
assets) in terms of
profiling, and
integration in a
GAA
Provide assistance
with alternative
investments
(including real
assets) in terms of
profiling, and
integration in a
GAA
•Alternative Investments
Provide assistance
with asset
allocation and
related risk control
and/or risk
budgeting
techniques
Provide assistance
with asset
allocation and
related risk control
and/or risk
budgeting
techniques
•Global Asset Allocation
(GAA)
49

Finlight Research - Market Perspectives - May 2015

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Finlight Research - Market Perspectives - May 2015