This document summarizes a low volatility equity strategy focused on the Euro Stoxx 50 Index. It discusses how the strategy aims to enhance long-term portfolio performance while reducing equity risk. The strategy constructs an optimal portfolio that minimizes variance based only on the covariance matrix, without considering expected returns. Historically, this minimum variance approach has produced higher returns with lower volatility than the benchmark, resulting in attractive risk-adjusted returns.

1. Equity Strategist
Minimum Volatility
Equity Solutions – Euro Stoxx 50 Index
October 2012
Q M S Advisors
. .
This material does not constitute investment advice and should not be viewed as tel: 078 922 08 77
a current or past recommendation or a solicitation of an offer to buy or sell any e-mail: info@qmsadv.com
securities or to adopt any investment strategy. website: www.qmsadv.com

2. Low Volatility Strategy
Risk Efficiency in Passive Investing
Enhancing Long-Term Portfolio Performance while
GOAL
Diminishing Equity Risks
Ø Delivering the best risk/return trade-of:
Ø Since the 1960s, the capital asset pricing model (CAPM) brought an elegant solution
to the optimization problem, arguing that the most efficient portfolio is necessarily a
broad market portfolio weighted by market capitalization of stocks.
Ø This corresponds to performing mean-variance optimization with market implied
forecasts of risk and returns.
Ø Market-capitalization weighted portfolio
Ø The only portfolio that is truly "passive" in its objective on the mean-variance
frontier is the Minimum Variance Portfolio (MVP).
Ø MVP is an optimal portfolio that is constructed by minimizing portfolio variance. The
minimum variance construction does not use stocks' expected returns as inputs, and
relies only on the covariance matrix.
Ø Risk-efficient passive equity allocation:
Ø There is a growing body of evidence of outsized ex-post risk-adjusted performance
of minimum variance portfolios.
Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com
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3. Low Volatility Strategy
Risk Efficiency in Passive Investing
Based on Historical Weekly Data from December 29th Eurostoxx 50 Low Volatility
2006 to the October 12th 2012 TR (*) Strategy (*)
Historical Returns -8.792% 2.550%
Historical Volatility 27.08% 20.39%
Historical Returns/Risk Ratio -0.3247 0.1250
Maximum Drawdown -62.75% -46.73%
Historical Skewness -1.16 -1.50
Historical Kurtosis 3.79 6.67
Jarque-Bera 248 674
Jarque-Bera: Chi-Test 0.99 0.00
Attractive historical statistical features
Ø The low volatility strategy offers attractive statistical features whether considered on a
standalone or total portfolio basis, and this despite the extreme market environment
considered in our analysis.
Source: Bloomberg, QMS Advisors
Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com
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4. Low Volatility Strategy
Performance
Based on Historical Data from Dec 29th 2006 to Oct 12st 2012
140
120
115.75
Historical Performance - Base 100 on December 26th 2006
100
80
60 58.60
40
20
0
29.12.06 29.06.07 29.12.07 29.06.08 29.12.08 29.06.09 29.12.09 29.06.10 29.12.10 29.06.11 29.12.11 29.06.12
-20
Performance Differential: Low Volatility Strategy (*) Performance: Eurostoxx 50 TR (*)
Performance: Low Volatility Strategy (*)
Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com
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5. Low Volatility Strategy
Significantly Reduced Volatility
Based on Historical Data from Dec 29th 2006 to Oct 12st 2012
50% -35%
45%
-30%
Volatility Differential (in %, inverted scale)
40%
Volatility (52 Weeks Rolling in % p.a.)
-25%
35%
-20%
30%
25%
-15%
20%
-10%
15%
-5%
10%
5% 0%
04.01.2008
04.03.2008
04.05.2008
04.07.2008
04.09.2008
04.11.2008
04.01.2009
04.03.2009
04.05.2009
04.07.2009
04.09.2009
04.11.2009
04.01.2010
04.03.2010
04.05.2010
04.07.2010
04.09.2010
04.11.2010
04.01.2011
04.03.2011
04.05.2011
04.07.2011
04.09.2011
04.11.2011
04.01.2012
04.03.2012
04.05.2012
04.07.2012
04.09.2012
Volatility Differential: Low Volatility Strategy (*) Volatility (Rolling 52 Weeks) Eurostoxx 50 TR (*)
Volatility (Rolling 52 Weeks) Low Volatility Strategy (*)
Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com
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6. Low Volatility Strategy
Consistently Higher Information Ratios
Based on Historical Data from Dec 29th 2006 to Oct 12st 2012
4 1.2
3 1
Information Ratio Differential (52 Weeks Rolling)
Information Ratio (52 Weeks Rolling)
2 0.8
1 0.6
0 0.4
28.12.2007
28.02.2008
28.04.2008
28.06.2008
28.08.2008
28.10.2008
28.12.2008
28.02.2009
28.04.2009
28.06.2009
28.08.2009
28.10.2009
28.12.2009
28.02.2010
28.04.2010
28.06.2010
28.08.2010
28.10.2010
28.12.2010
28.02.2011
28.04.2011
28.06.2011
28.08.2011
28.10.2011
28.12.2011
28.02.2012
28.04.2012
28.06.2012
28.08.2012
-1 0.2
-2 0
Information Ratio Differential: Low Volatility Strategy (*) Information Ratio: Eurostoxx 50 TR (*) Information Ratio: Low Volatility Strategy (*)
Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com
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7. Maximum Drawdown from December 29th 2006 (in %)
0%
-70%
-60%
-50%
-40%
-30%
-20%
-10%
29.12.2006
28.02.2007
29.04.2007
29.06.2007
29.08.2007
29.10.2007
29.12.2007
29.02.2008
Q.M.S Advisors
29.04.2008
29.06.2008
29.08.2008
29.10.2008
29.12.2008
28.02.2009
29.04.2009
Maximum Drawdown: Low Volatility Strategy (*)
29.06.2009
29.08.2009
Max. Drawdown Differential: Low Volatility Strategy (*)
29.10.2009
Reduced Drawdown Risks
Based on Historical Data from Dec 29th 2006 to Oct 12st 2012
29.12.2009
28.02.2010
29.04.2010
29.06.2010
29.08.2010
Low Volatility Strategy
29.10.2010
29.12.2010
28.02.2011
29.04.2011
29.06.2011
29.08.2011
| tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com
29.10.2011
29.12.2011
29.02.2012
Maximum Drawdown: Eurostoxx 50 TR (*)
29.04.2012
29.06.2012
29.08.2012
8%
-2%
18%
28%
38%
48%
58%
M. Drawdown Differential (in %)
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8. Low Volatility Strategy
Comparative Distribution of Weekly Returns
Based on Historical Data from Dec 29th 2006 to Oct 12st 2012
25% 100%
90%
20% 80%
Fréquence (nombre d'observations)
70%
15% 60%
50%
10% 40%
30%
5% 20%
10%
0% 0%
-20% -18% -16% -14% -12% -10% -8% -6% -4% -2% 0% 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 22%
Low Volatility Strategy (*) Eurostoxx 50 TR (*) Eurostoxx 50 TR (*) Low Volatility Strategy (*)
Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com
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9. Low Volatility Strategy
Relative Weekly Distribution of Returns
Based on Historical Data from Dec 29th 2006 to Oct 12st 2012 15%
y = 0.725x + 0.002
R2 = 0.928
10%
5%
Low Volatility Strategy (*)
0%
-30% -25% -20% -15% -10% -5% 0% 5% 10% 15%
-5%
-10%
-15%
-20%
-25%
-30%
Eurostoxx 50 TR (*)
Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com
Page 8

10. Low Volatility Strategy
A Simple Approach to Higher Portfolio Efficiency
Ø Low Volatility Strategies offer a simple, transparent and highly
customizable way to tap one of the most recognized and documented
source of alpha:
Ø This passive strategy utilizes a systematic approach that does not rely on
forecasts of stock returns and uses as input only the covariance matrix.
Ø The portfolio resulting from minimum variance optimization has the smallest
ex-ante volatility, and exhibits a significant reduction in ex-post risk as well,
with respect to the selected benchmark
Ø Historically the strategy has produced significantly higher returns with
lower realized volatility when compared to its benchmark; resulting in
attractive Sharpe ratios.
Ø Empirical evidence shows that the design of the optimization problem plays a
much greater role when assuming homogeneous return estimates. This in
turn results in allocations that maintain their promise: exhibiting lower risk in
the future while giving full exposure to the equity market
Q.M.S Advisors | tel: +41 (0)78 922 08 77 | e-mail: info@qmsadv.com | website: www.qmsadv.com
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